Finance is the language of business. To understand this language, we should start with some key words. First of all, the most basic words in financial language are income, profit and cash flow. Profit is the quality of income, and cash flow is the quality of profit.
What do you mean? If you ask an entrepreneur, how is your company's revenue this year? He replied, I probably sold more than 500 million this year, and last year it was more than 300 million. You said, wow, great. You have gained a lot this year. How much money did you make this year? The profit is similar to last year. Last year, it earned more than 50 million yuan, and this year it is more than 60 million yuan. You see, although his income increased by 200 million yuan, his profit only increased by 65.438 million yuan. Profits do not increase linearly with income. This shows that the quality of his income this year is actually not as good as last year.
If you look at the annual list of Forbes Global 500 companies, Wal-Mart ranks first in terms of revenue for a long time. But people are not really most concerned about the ranking of income. What do you care about most? Pay attention to market value. The company with the highest market value today is Apple. Market value comes from profit. Although Apple's income is not as good as Wal-Mart's, its profit is much higher.
You then asked the entrepreneurs at the beginning that you made a profit of 60 million this year, so did you give bonuses to employees? Because although the profit is 60 million, there is no money in the account. The customer's payment has not been sent to me, and the cash in the account has been replenished. You see, although his profit is more than 60 million in the financial statement, there is no cash flow in his account. Even though he made so much profit on the paper, the profit did not turn into cash and entered his account, so he could not use it for the time being if he wanted to. Profits are on the books, not artificially created. Cash flow is real and needs loans and loans.
The relationship between profit and cash flow is just like the relationship between social science and natural science. Natural science exists objectively, while social science needs artificial interpretation.
Looking at the income statement can help us know whether this enterprise is profitable or not. But at the same time, we also need to look at cash flow, which can help us to see whether the profits have arrived. Remember, profit is the quality of income. Cash flow is the quality of profit.
We observe a company not only by its income, but also by its profit and cash flow. Income represents the market size, profit represents the room for making money, and cash flow represents the ability to take risks. These three indicators are healthy, and the company can develop in the long run.
The second group of words in financial language, say assets and liabilities first. What is an asset? Assets include cash and cash equivalents, accounts receivable, inventories and fixed assets. What is debt? Liabilities, including accounts received in advance, accounts payable, loans (including bank loans), etc. ) and shareholders' equity. Why is shareholder's equity a liability? Since the shareholders have invested in you, you have the responsibility to make money for the shareholders, which is a kind of debt (responsibility).
Regarding assets and liabilities, let me give a concrete example. What assets do you have if you run a canteen? There is some cash in your account. This is your asset. Lao Wang next door often comes to your place to drink beer, asking you to pay him back at the end of the month. This is accounts receivable and the money is yours. This is your asset. A large number of goods in the grocery store can sell for tens of thousands of dollars. These stocks are your assets. The house in the canteen has been handed down from your family. It is your fixed asset and can also be sold. This is your asset, too.
Cash, accounts receivable, inventory and fixed assets are all your assets. Among them, selling a house (fixed assets) is the most difficult. Selling inventory is not easy, but it is not as difficult as selling a house. It is easier to collect accounts receivable. You can use the cash in your account immediately after you take it out. Therefore, the liquidity of fixed assets, inventory, accounts receivable and cash increased in turn.
So what debts do you have? Lao Wang's son next door will come to you for snacks every day after school, so Lao Wang saved 500 yuan from you in advance and let his son take whatever he wants when he comes. This 500 yuan is an advance payment, because you haven't paid the same amount of snacks to Lao Wang's son in full, so this is your debt.
You bought candy from a candy company this month and agreed to pay it one month later. This is your accounts payable and this is your debt. When you opened the shop, you borrowed 20,000 yuan from your relatives. You will repay his loan with interest in the future. This is your debt. At the same time, your mother invested 50 thousand yuan in you when you opened the store. This 50 thousand is not yours, but your mother's. Your mother is equivalent to your shareholder. You have the responsibility to help your mother earn at least 8% every year.
Why else would she invest in you? If the money can earn 8% a year in the bank, she has invested in you now. If you don't help her earn 8%, you're in breach of contract. This is shareholders' equity, and this is also your debt.
Accounts received in advance, accounts payable, loans (including bank loans, etc.). ) and shareholders' equity are your liabilities. Knowing what assets and liabilities are, you can thoroughly understand what your assets are and can be realized; What is your debt? Never spend it. For example, a barbershop's stored-value card is a liability. You can't spend this money