Oana Labes, MBA, CPA on LinkedIn: #entrepreneur #finance #business | 48 comments (2024)

Pour les connaîsseurs... But not only for them (#finance experts): the awareness of these #EBITDA adjustments should be more widespread. Check out this useful post by Oana Labes, MBA, CPA! 👇

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Associates (and others) in transactional practices: Part of standing out from the crowd and generating the respect (and interest) of partners, clients, and opposing counsel is--my relentless refrain--demonstrating sufficient business acumen to knowledgeably discuss and negotiate the business terms of the transaction. So again, dispense with the "I'm not good at numbers" mindset and make sure the words are expunged from your conversations, even with yourself. You need to understand the crucial definitions of EBITDA and Adjusted EBITDA or switch practice areas. If you have learned (or even sort of learned) how to read simple financial statements you will find Oana Labes, MBA, CPA's list helpful. But don't assume that any given adjustment applies, that you couldn't think up others, or that negotiations won't get heated. This will depend on the particular circ*mstances of your client and its counterparty and the creativity of all involved. Importantly, whether your suggestions are accepted or not you will have demonstrated your value. Don't be afraid of speaking up. You do not have to be right--just informed.#lawyers #associates #EBITDA #businessacumen

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What is EBITDA? Learning some new terms and knowledge as preparation begins for the next quarter of MBA studies -- Financial return, risk and innovation. Thanks for this infographic to help explore this term

📊 𝗘𝗮𝘀𝘆 𝗦𝘁𝗲𝗽𝘀 𝘁𝗼 𝗘𝘃𝗮𝗹𝘂𝗮𝘁𝗲 𝗖𝗼𝗺𝗽𝗮𝗻𝘆 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀: 𝗦𝗽𝗼𝘁𝘁𝗶𝗻𝗴 𝗦𝗶𝗴𝗻𝘀 𝗼𝗳 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗛𝗲𝗮𝗹𝘁𝗵 𝗼𝗿 𝗦𝗵𝗮𝗱𝘆 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗲𝘀 🕵️♂️As investors, it's crucial to assess a company's financial statements to make informed decisions. Today, let's explore some simple steps you can follow to evaluate financial statements and identify signs of financial health or potential red flags! 💼1️⃣ Check the Balance Sheet:The balance sheet provides insights into a company's financial position at a specific point in time. Focus on these aspects:✅ Liquidity: Examine the company's current assets, such as cash and receivables, compared to its current liabilities. A healthy liquidity position indicates the ability to meet short-term obligations.✅ Debt Levels: Assess the company's long-term debt and compare it to its equity or assets. Excessive debt could lead to financial instability or interest payment issues. Debt-to-Equity ratio-not more than 30%or 1.5-22️⃣ Analyze the Income Statement:The income statement reveals a company's revenue, expenses, and profitability. Look for the following indicators:✅ Revenue Trends: Evaluate the company's revenue growth over multiple periods. Consistent or increasing revenue may signify a healthy business.✅ Profit Margins: Assess the company's gross profit margin and net profit margin. Higher margins indicate efficient operations and profitability.3️⃣ Review the Cash Flow Statement:The cash flow statement reflects a company's cash inflows and outflows. Pay attention to:✅ Operating Cash Flow: Analyze the company's ability to generate cash from its core operations. Positive and growing operating cash flow is a positive sign.✅ Investing and Financing Activities: Examine cash flows related to investments and financing. Evaluate whether the company is effectively managing its capital expenditures and debt.4️⃣ Study Notes to the Financial Statements:Read the footnotes accompanying the financial statements. These provide additional context and disclosure about accounting policies, significant events, or potential risks. Pay attention to any unusual or concerning information.5️⃣ Seek Independent Analysis:Consider accessing independent research reports or analyst opinions to gain a broader perspective on the company.Most important Financial ratios for investors to validate a company’s valuation.🔍 Remember, financial statement analysis requires careful consideration and ongoing learning. By following these steps, you can begin to uncover insights into a company's financial health or spot potential red flags.📣 Share your thoughts or additional tips for evaluating financial statements in the comments below. Let's empower each other to make informed investment decisions! 💬 Equivaluesearch #FinancialStatements #InvestmentDecisions #FinancialHealth #RedFlags #InvestingTips#financialanalysis #valuation #valueinvesting #trading

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🗽Current and Non-Current Assets and Liabilities As Per Ind As-1.📢Under Ind AS 1, "Presentation of Financial Statements," assets and liabilities are classified into current and non-current categories on the balance sheet (statement of financial position) based on the entity's operating cycle and other relevant factors. The distinction between current and non-current items is essential as it provides insights into an entity's liquidity and financial stability.🔸Current Assets:-Current assets are those that are expected to be realized, consumed, or sold within the entity's normal operating cycle (typically one year) or held primarily for trading purposes They are presented in the order of liquidity. Common examples of current assets include:1. Cash and Cash Equivalents2. Short-Term Investments3. Trade Receivables4. Inventories5. Prepaid Expenses6. Other Short-Term Receivables7. Marketable Securities🔸Non-Current Assets:-Non-current assets, also known as long-term assets or fixed assets, are those that are not expected to be realized or converted into cash within the entity's normal operating cycle. They are intended for use over an extended period. Examples of non-current assets include:1. Property, Plant, and Equipment2. Intangible Assets3. Investments in Associates and Subsidiaries4. Long-Term Investments5. Deferred Tax Assets6. Long-Term Receivables7. Goodwill🔸Current Liabilities:-Current liabilities are obligations that are expected to be settled within the entity's normal operating cycle or within one year from the balance sheet date, whichever is longer. Common examples of current liabilities include:1. Trade Payables (Accounts Payable)2. Short-Term Borrowings3. Current Portion of Long-Term Debt4. Accrued Liabilities5. Unearned Revenue (Deferred Revenue)6. Short-Term Provisions🔸Non-Current Liabilities:- Non-current liabilities are obligations that are not due for settlement within the entity's normal operating cycle or within one year from the balance sheet date. They represent obligations that extend beyond the short term. Examples of non-current liabilities include:1. Long-Term Borrowings2. Long-Term Provisions3. Deferred Tax Liabilities4. Lease Liabilities (if not classified as short-term)5. Bonds Payable6. Pension LiabilitiesIt's important to note that the classification of assets and liabilities as current or non-current is based on management's assessment of the entity's operating cycle and other relevant factors at the balance sheet date. Additionally, there might be cases where an entity has operating cycles that are longer than a year, and in such cases, the classification would be based on the longer cycle.🔸Upcoming new Ind as 3🔸

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𝗘𝗕𝗜𝗧𝗗𝗔 𝘃𝘀. 𝗙𝗖𝗙: 𝗛𝗲𝗿𝗲'𝘀 𝘄𝗵𝗮𝘁 𝗖𝗙𝗢𝘀 𝗻𝗲𝗲𝗱 𝘁𝗼 𝗸𝗻𝗼𝘄...EBITDA = Earnings Before Interest Taxes Depreciation & AmortizationFCF = Free Cash Flow𝘌𝘉𝘐𝘛𝘋𝘈 is a measure of a company's operating performance and profitability before considering non-operating expenses such as interest, taxes, depreciation, and amortization. It is calculated by adding back these expenses to the net income.𝘍𝘊𝘍 represents the cash a company generates from its operations after deducting capital expenditures (CAPEX). It measures the amount of cash available to the company for reinvestment, debt reduction, dividends, or other uses.𝗕𝗲𝗻𝗲𝗳𝗶𝘁𝘀 𝗼𝗳 𝗘𝗕𝗜𝗧𝗗𝗔1. 𝗦𝗶𝗺𝗽𝗹𝗶𝗰𝗶𝘁𝘆: EBITDA is a straightforward metric that provides a quick snapshot of performance.2. 𝗖𝗼𝗺𝗽𝗮𝗿𝗮𝗯𝗶𝗹𝗶𝘁𝘆: EBITDA allows for easier comparison of the operating performance of different companies.3. 𝗙𝗼𝗰𝘂𝘀 𝗼𝗻 𝗰𝗮𝘀𝗵 𝗴𝗲𝗻𝗲𝗿𝗮𝘁𝗶𝗼𝗻: EBITDA is often used to assess a company's ability to generate cash from its core operations.𝗗𝗿𝗮𝘄𝗯𝗮𝗰𝗸𝘀 𝗼𝗳 𝗘𝗕𝗜𝗧𝗗𝗔1. 𝗜𝗴𝗻𝗼𝗿𝗲𝘀 𝗻𝗼𝗻-𝗼𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴 𝗲𝘅𝗽𝗲𝗻𝘀𝗲𝘀: EBITDA does not account for important expenses such as interest, taxes, depreciation, and amortization.2. 𝗟𝗮𝗰𝗸 𝗼𝗳 𝗰𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝗶𝗻𝗳𝗼𝗿𝗺𝗮𝘁𝗶𝗼𝗻: EBITDA doesn't provide insight into a company's actual cash flows.3. 𝗦𝘂𝘀𝗰𝗲𝗽𝘁𝗶𝗯𝗹𝗲 𝘁𝗼 𝗺𝗮𝗻𝗶𝗽𝘂𝗹𝗮𝘁𝗶𝗼𝗻: EBITDA can be manipulated by adjusting accounting practices, making it less reliable.𝗕𝗲𝗻𝗲𝗳𝗶𝘁𝘀 𝗼𝗳 𝗙𝗖𝗙1. 𝗖𝗮𝘀𝗵 𝗳𝗹𝗼𝘄 𝗳𝗼𝗰𝘂𝘀: FCF provides a direct measure of the cash generated by a company's operations.2. 𝗟𝗼𝗻𝗴-𝘁𝗲𝗿𝗺 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆: FCF is a valuable indicator of a company's ability to generate sustainable cash flows over time.3. 𝗙𝗹𝗲𝘅𝗶𝗯𝗶𝗹𝗶𝘁𝘆: Use FCF to evaluate various aspects of performance, like reinvestment potential and debt-paying ability. 𝗗𝗿𝗮𝘄𝗯𝗮𝗰𝗸𝘀 𝗼𝗳 𝗙𝗖𝗙1. 𝗖𝗼𝗺𝗽𝗹𝗲𝘅𝗶𝘁𝘆: Calculating FCF can be time-consuming and prone to errors as it requires a lot of analysis.2. 𝗩𝗼𝗹𝗮𝘁𝗶𝗹𝗶𝘁𝘆: FCF is subject to fluctuations due to changes in working capital requirements or capital expenditures.3. 𝗟𝗶𝗺𝗶𝘁𝗲𝗱 𝗰𝗼𝗺𝗽𝗮𝗿𝗮𝗯𝗶𝗹𝗶𝘁𝘆: Comparing FCF across industries is challenging due to differences in accounting practices and capital structures.----------Which of the two KPIs is your favorite?What benefits and drawbacks would you like to highlight?#finance #cashflow #cfo #accountingandaccountants ----------🎧 Listen to our #FinanceMaster Podcast here: https://bit.ly/3NLSt73📰 Sign up for our newsletter here: https://bit.ly/TrendsInFnA🧑🎓 Learn how we can help your finance team here: https://bit.ly/3prsWXH🤝 Book a discovery call with me here: https://lnkd.in/eJWAub9r

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The #FCF approach provides a more comprehensive view of a company's actual #cashflow generation and value than the #EBITDA approach, which focuses on #operating #profitability and ignores some important factors. Analysts often combine both approaches to gain a more accurate understanding of a company's financial performance and prospects.

Understanding the Balance SheetA balance sheet is a fundamental financial statement that provides a snapshot of a company's financial position at a specific point in time. It is an essential tool for investors, creditors, and analysts to assess a company's solvency, liquidity, and overall financial health. The balance sheet follows the accounting equation, which states that assets equal liabilities plus equity. In this article, we will delve into the components of the balance sheet and explore their significance in evaluating a company's financial stability.Components of a Balance Sheet:1. Assets:-Current Assets: These are assets expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, inventory, and short-term investments.-Non-current Assets: Also known as long-term assets, these are resources with a useful life of more than one year. Examples include property, plant, equipment, intangible assets, and long-term investments.2. Liabilities:-Current Liabilities: Debts and obligations due within one year, including accounts payable, short-term debt, and accrued expenses.-Non-current Liabilities: Long-term debts and obligations that extend beyond one year, such as long-term loans, bonds, and deferred tax liabilities.3. Equity:-Shareholders' Equity: This represents the residual interest in the assets of the company after deducting liabilities. It includes common stock, additional paid-in capital, retained earnings, and other comprehensive income.Analyzing the Balance Sheet:1. Liquidity Ratios:- The balance sheet helps calculate key liquidity ratios like the current ratio (current assets/current liabilities) and the quick ratio (quick assets/current liabilities). These ratios assess a company's ability to meet short-term obligations.2. Debt Ratios:- Examining the proportion of debt to equity (debt-to-equity ratio) or total assets (debt ratio) provides insights into a company's leverage and financial risk.3. Asset Turnover:- The balance sheet aids in calculating asset turnover ratios, which measure how efficiently a company utilizes its assets to generate revenue.4. Book Value:- Shareholders' equity on the balance sheet helps determine the book value per share, serving as a benchmark for evaluating a stock's intrinsic value.5. Financial Health Assessment:- A strong balance sheet with healthy levels of assets relative to liabilities signifies financial stability and resilience during economic downturns.#accounting #balancesheet #accountant #accountingtips #accountingservices

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Warren Buffett’s Financial Statement Guidelines:INCOME STATEMENT:Gross MarginFormula: Gross Profit / RevenueRule: 40% or higherLogic: Indicates the company isn't competing on price.SG&A MarginFormula: SG&A Expense / Gross ProfitRule: 30% or lowerLogic: Companies with strong positions need less overhead spending.R&D MarginFormula: R&D Expense / Gross ProfitRule: 30% or lowerLogic: Research costs may not always benefit shareholders.Depreciation MarginFormula: Depreciation / Gross ProfitRule: 10% or lowerLogic: Avoids companies heavily reliant on depreciating assets.Interest Expense MarginFormula: Interest Expense / Operating IncomeRule: 15% or lowerLogic: Strong businesses don't rely heavily on debt.Income Tax ExpensesFormula: Taxes Paid / Pre-Tax IncomeRule: Current Corporate Tax RateLogic: Profits warrant full tax payments.Net Margin (Profit Margin)Formula: Net Income / SalesRule: 20% or higherLogic: Successful firms convert over 20% of revenue to profit.Earnings Per Share GrowthFormula: Year 2 EPS / Year 1 EPSRule: Positive & GrowingLogic: Strong companies increase profits yearly.BALANCE SHEET:9. Cash & DebtFormula: Cash > DebtRule: More cash than debtLogic: Flourishing firms avoid excessive debt.Cash & DebtFormula: Cash > DebtRule: More cash than debtLogic: Prosperous firms generate cash without heavy debt.Adjusted Debt to EquityFormula: Total Liabilities / Shareholder Equity + Treasury StockRule : < 0.80Logic: Thriving companies rely on equity for funding.Preferred StockRule: NoneLogic: Strong companies don't require preferred stock for funding.Retained EarningsFormula: Year 1 / Year 2Rule: Consistent growthLogic: Successful firms see growing retained earnings annually.Treasury StockRule: ExistsLogic: Flourishing companies buy back their stock.CASH FLOW STATEMENT:15. Capex Margin- Formula: Capex / Net Income- Rule: <25%- Logic: Prosperous companies require less equipment for profit generation.Important Note: There are exceptions to these guidelines.

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I agreed that EBITDA is an imperfect measurement of a company's financial health. However, I believe that there is no such thing as a perfect financial indicator. EBITDA can be a useful starting point for valuation, but it should be used in conjunction with other indicators such as CAPEX, equity, and debt.

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