23:05
Faizan
Here is a list of my business and accounting courses in college:
1.
2.
3.
I was an Education Major (teaching), so I didn't get anything on financial statements "FSs". When I started as a surety bond underwriting trainee, I realized that I had no idea what a Balance Sheet was - but I learned.
If your first reaction when you look a FS is "Duh," we will fix that right now. Keep reading! This will be a view from 30,000 feet. Big picture.
To be complete, every financial statement must include at the minimum:
1) Balance Sheet
2) Profit and Loss Statement
The Balance Sheet
This document is a one-day snap shot of the funds in the company (Assets) and who owns them (Liabilities). The assets and liabilities are equal "balance" because every dollar in the company is shown from two points of view: the Asset side and who owns it, the Liability side.
The Balance Sheet has three important parts we can review initially. Let's identify them based on their functionality.
Current Assets: This line item is a subtotal found near the middle of the Asset column. It represents those assets readily convertible to cash within the coming fiscal year (such as Accounts Receivable).
Current Liabilities: Found near the middle of the Liabilities column, these are debts to be paid in the coming fiscal year (such as Accounts Payable).
Total Stockholders Equity, aka Net Worth: Usually the last subsection near the end of the Liabilities column. This is the company's Net Worth that would remain if they shut down and liquidated everything.
The Profit and Loss Statement
This is a historical summary of all the money taken in (Sales aka Revenues) and money spent (Expenses) during the preceding period, usually one year. At the bottom of the column is the Net Profit, which is the money the company "made" for the year after paying all the related bills and taxes.
Now that you can pick out a couple of strategic numbers on any FS, what shall we do with them?
Calculate Working Capital
This is a primary measure of financial strength used by all analysts, including sureties, banks and other credit grantors. It is found by subtracting the Current Liabilities from the Current Assets. It is an indicator of expected cash flow in the coming year.
The Sniff Test
Here is a quick, simplified test to use when considering a particular bid or performance bond. The evaluation is made based on the expected contract (not bond) amount. This is an instant indication of the adequacy of the finances in regard to the upcoming project.
Part One - The Working Capital target amount is 15% of the contract amount. For example, if the contract amount is $1,000,000, sureties hope to see Working Capital of at least $150,000.
1.
2.
3.
I was an Education Major (teaching), so I didn't get anything on financial statements "FSs". When I started as a surety bond underwriting trainee, I realized that I had no idea what a Balance Sheet was - but I learned.
If your first reaction when you look a FS is "Duh," we will fix that right now. Keep reading! This will be a view from 30,000 feet. Big picture.
To be complete, every financial statement must include at the minimum:
1) Balance Sheet
2) Profit and Loss Statement
The Balance Sheet
This document is a one-day snap shot of the funds in the company (Assets) and who owns them (Liabilities). The assets and liabilities are equal "balance" because every dollar in the company is shown from two points of view: the Asset side and who owns it, the Liability side.
The Balance Sheet has three important parts we can review initially. Let's identify them based on their functionality.
Current Assets: This line item is a subtotal found near the middle of the Asset column. It represents those assets readily convertible to cash within the coming fiscal year (such as Accounts Receivable).
Current Liabilities: Found near the middle of the Liabilities column, these are debts to be paid in the coming fiscal year (such as Accounts Payable).
Total Stockholders Equity, aka Net Worth: Usually the last subsection near the end of the Liabilities column. This is the company's Net Worth that would remain if they shut down and liquidated everything.
The Profit and Loss Statement
This is a historical summary of all the money taken in (Sales aka Revenues) and money spent (Expenses) during the preceding period, usually one year. At the bottom of the column is the Net Profit, which is the money the company "made" for the year after paying all the related bills and taxes.
Now that you can pick out a couple of strategic numbers on any FS, what shall we do with them?
Calculate Working Capital
This is a primary measure of financial strength used by all analysts, including sureties, banks and other credit grantors. It is found by subtracting the Current Liabilities from the Current Assets. It is an indicator of expected cash flow in the coming year.
The Sniff Test
Here is a quick, simplified test to use when considering a particular bid or performance bond. The evaluation is made based on the expected contract (not bond) amount. This is an instant indication of the adequacy of the finances in regard to the upcoming project.
Part One - The Working Capital target amount is 15% of the contract amount. For example, if the contract amount is $1,000,000, sureties hope to see Working Capital of at least $150,000.
Posted in: business
