Understand Company Finances Flashcards
What is Revenue?
Revenue is the income generated from normal business operation, it is the top line gross income figure.
How is net income calculated?
Revenue - Costs = Net Income
How do you calculate future sales revenue?
Sales Revenue = Number of units sold (as an average) x average price
How do you estimate future revenue?
Estimate average selling prices do this by researching the company’s historical products and upcoming products to identify future price points.
How do you calculate the average price of a product/service for future estimates?
Identify the business product or service lines for comparison, then collect data of actually sales/service etc from previous years.
How do you forecast the following years sales estimates?
Research the companies EOY sales targets and compare previous years sales data. Take an average of previous years if there is no evidence of sales targets.
What is the YOY percentage growth formula?
Following year forecast or end of current year forecast / previous year forecast -1
How do you assume % growth YOY?
0-3 years is fast, following 2 years is reduced and 2 years after that reduced again.
Example: 1-3 years = 30% 4-5 years = 10% 6-7 years = 5% every year after = 2%
How do you calculate future sales, i.e. for the following year?
Previous period sales *(1 + estimated growth rate)
What is gross profit?
GP is the profit a company makes after deducing costs associated with selling it’s products or providing its service.
GP = Revenue - costs of goods sold
How do you calculate a sensible GP % average?
Take number of competitors and compare their GP margins (taken from their financial statements) and divide by number of competitors you analyse
How do you calculate future growth profit?
Revenues * GP% for respective year
How do you calculate cost of sales?
COGs = -(Revenue - GP)
There is a minus before the equation because this is a cost and therefore negative.
What are operating expenses?
The cost a business in cures during the process of performing normal business operation.
How do you forecast operating expenses (OPEX)?
Look at comparable competition to find opex and calculate the average.
