What are the 8 Balance Sheet Yellow Flags? | Brian Stoffel posted on the topic | LinkedIn (2024)

good for fin planning

5

“….good reasons to violate…” is odd terminology 😉. Perhaps you mean that your yellow flags could in fact be red or green! Perhaps with the exception of negative retained earnings (aka losses), any balance sheet figure could be reflective of good or bad performance. Even then, planned and funded (by capital) start up losses need not necessarily be concerning.I’d suggest 1. beware taking shortcuts in analysis; 2. always look to reconcile cash and profits and understand the differences (which can reveal dodgy accounting); 3. recognise that businesses that are on top of their numbers will rarely use statutory formats et al in their day to day management of performance and control of the business.

1

Knowing Balancesheet more with Brian Stoffel

3

As companies post their year end balance sheets here is a helpful list of things to look for. #leadership #management #technology #informationsecurity #ciso #riskmanagement #security #cybersecurity #privacy

26

1 Comment

Some helpful tips on reading balance sheets

8 Balance Sheet Yellow Flags: by Brian Stoffel1: CASH & CASH EQUIVALENTS → Less Than Total Debt 🇳🇺2: ACCOUNTS RECEIVABLE → Rising Faster Than Revenue 🇳🇺3: INVENTORY → Rising Faster Than Profits 🇳🇺4: GOODWILL → More Than 50% of Total Assets 🇳🇺5: INTANGIBLE ASSETS → More Than 50% of Total Assets 🇳🇺6: SHORT-TERM DEBT & LONG-TERM DEBT → More Than Cash 🇳🇺7: PREFERRED STOCK → There Shouldn’t Be Any 🇳🇺8: RETAINED EARNINGS → A Negative Number 🇳🇺IMPORTANT: I labeled these as "Yellow" flags for a reason.Lots of companies have good reasons to violate these balance sheet rules of thumb.Accounting is filled with nuance.-----------------------------------------------------------------------------P.S. What about yellow flags on the income / cash flow statements?We'll cover them in: Financial Statements Explained SimplyI've run the course for two years and it has a Net Promoter Score (NPS) of 100!

7

1 Comment

Balance Sheet Yellow Flags:Watch out for these 8 warning signs:1: CASH & CASH EQUIVALENTS → Less Than Total Debt 🇳🇺2: ACCOUNTS RECEIVABLE → Rising Faster Than Revenue 🇳🇺3: INVENTORY → Rising Faster Than Profits 🇳🇺4: GOODWILL → More Than 50% of Total Assets 🇳🇺5: INTANGIBLE ASSETS → More Than 50% of Total Assets 🇳🇺6: SHORT-TERM DEBT & LONG-TERM DEBT → More Than Cash 🇳🇺7: PREFERRED STOCK → There Shouldn’t Be Any 🇳🇺8: RETAINED EARNINGS → A Negative Number 🇳🇺IMPORTANT: I labeled these as "Yellow" flags for a reason.Many companies have good reasons to violate these "rules."There are also good reasons for companies to hold less cash than debt, issue preferred stock, have rising inventories, and hold lots of intangible assets.The point is that if you see one of these eight yellow flags, you should investigate further.What did I miss? Let me know in the comments section.***📌 P.S. Want to master financial statements analysis? Join me in November for my cohort-based course, Advanced Financial Statement Analysis.My LinkedIn followers get $200 off.See course details & apply coupon code here:https://lnkd.in/e6CiAUhgIf you found this post useful, please repost ♻️ to share with your audience.

494

26 Comments

𝗕𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗵𝗲𝗲𝘁 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝗶𝗼𝗻Balancing the books is no simple task, but with the right approach, you can project your Balance Sheet with confidence. Here are some essential steps to keep in mind:→ Build supporting sheets, CAPEX (purchase value, depreciation, carrying value), NWC sheet (AR, Inventories, AP, Other current assets and liabilities), Debt sheet (current and new loan schedules)→ All items related to fixed assets should be imported from the 'CAPEX' sheet.→ Shift your attention to current assets. The sources for these are twofold: inventories, account receivables, and other current assets are derived from the net working capital sheet.→ The cash position is pulled from the 'Projected Cash Flow Statements' sheet.→ A crucial part of the balance sheet projection is the calculation of equity. The formula to determine this is by taking the equity from the previous period, adding the net income (or subtracting the net loss) for the current period, accounting for any dividends, and then adjusting for any increase in share equity.→ All long-term liabilities, as well as financial liabilities, should be imported from the 'Debt' sheet.→Trade payables and other current liabilities must be imported from the 'net working capital' sheet.Balancing your Balance Sheet requires diligence and precision. By following these steps and using a well-structured financial model, you can maintain financial clarity.Credit to Bojan Radojicic for this fantastic infographic.____________________________📌Let's learn finance modeling together. Build a model → Ensure sustainable growth → Increase your income. Start today 👇https://lnkd.in/dZD5QNfh #BalanceSheet #FinancialProjection #FinancialPlanning

274

9 Comments

Balance sheet vs income statement 1️⃣ Definition:- Balance Sheet: A snapshot of a company's financial position at a specific point in time.- Income Statement: A summary of a company's revenues, expenses, and profits over a given period.2️⃣ Main Components:- Balance Sheet: Assets, Liabilities, Equity.- Income Statement: Revenues, Expenses, Net Income.3️⃣ Purpose:- Balance Sheet: Shows the financial health and solvency of a company.- Income Statement: Reveals a company's profitability during a specific time frame.4️⃣ Timeframe:- Balance Sheet: A specific date (e.g., end of a quarter or year).- Income Statement: A specific period (e.g., monthly, quarterly, or annually).5️⃣ Focus:- Balance Sheet: On the company's financial position at a given moment.- Income Statement: On a company's performance over time.6️⃣ Primary Elements:- Balance Sheet: Assets (current and non-current), Liabilities (current and non-current), Equity.- Income Statement: Revenues (sales, interest income, etc.), Expenses (cost of goods sold, operating expenses, etc.), Net Income.7️⃣ Reporting Frequency:- Balance Sheet: Typically reported quarterly and annually.- Income Statement: Can be reported monthly, quarterly, and annually.8️⃣ Regulatory Requirements:- Balance Sheet: Required for financial transparency and often subject to regulatory scrutiny.- Income Statement: Essential for tax reporting and external financial disclosures.9️⃣ Example Items:- Balance Sheet: Cash, Accounts Receivable, Long-Term Debt, Common Stock.- Income Statement: Sales Revenue, Cost of Goods Sold, Operating Expenses, Net Profit. Let's keep learning together!#Finance #BalanceSheet #IncomeStatement #FinancialEducation

94

Finance Cheat SheetBalance Sheet:The balance sheet consists of the following elements:- Current assets- Long-term assets- Current liabilities- Long-term liabilities- Shareholders equityThe balance sheet is based on a simple formula:Assets = Liabilities + EquitiesA balance sheet shows you what a company owns and owes.Income Statement:An Income Statement shows you the revenues and expenses of a company.It consists of the following elements:Revenue - COGS= Gross Profit- Operating Expenses= Operating Income- Non-Operating Income / Expenses= Pre-Tax Income- Income Tax= Net IncomeCash Flow Statement:A Cash Flow Statements shows you the cash that enters and leaves a company.The Cash Flow Statements consists of 3 elements:- Cash Flow from Operating Activities- Cash Flow from Investing Activities- Cash Flow from Financing ActivitiesCash Flow from Operating Activities:Net Income+ Non-Cash Changes+/- Changes in Working Capital= Cash Flow from Operating ActivitiesCash Flow from Investing Activities:- Capital Expenditures- Acquisitions+ Proceeds from the Sale of Investments= Cash Flow from Investing ActivitiesCash Flow from Financing Activities:+/- Borrowing/Repaying Debt+/- Issuing/Repurchasing Stocks- Dividends Paid= Cash Flow from Financing Activities#finance #acccounting #balancesheet #profitandloss

8