Business Plan Part 4 : Solution Essays

hapter 12 covered creating a successful financial plan. The three basic financial statements that were covered including the balance sheet, the income statement, and statement of cash flows. Balance sheet is based on the old accounting formula assets equals liabilities plus owners equity. Balance sheets an estimate of the company’s value on a particular date, much like a snapshot of the company’s financial position. The income statement contains the firm’s revenues and expenses and determines what companies net income. It provides information about the amount of money going to the company’s bottom line. It is important to remember that income and cash are not the same things. The cash flow statement shows the change in the company’s working capital over an accounting period. These typically formatted by listing the sources and uses of funds. Also important for the entrepreneur to produce projected financial statements. These projections will help the owner manage the company’s cash flow. Another method that the entrepreneur may use to determine the company’s performance level is ratio analysis. It’s important to understand the four basic categories of ratios used to analyze your company. Leverage ratios tell how much the company is financed by owners and by creditors. A highly leveraged firm has a lot of as compared owners equity. Operating ratios show how effectively the farm is using its resources. Profitability ratios demonstrate the company’s profitability. A breakeven analysis is often used for a startup company to determine the required level of revenues to pay expenses including your salary.