No More Hustleporn: How to Read Balance Sheets - Software Edition

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Tweet by OnlyCFO
https://twitter.com/OnlyCFO

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   @OnlyCFO:  
 
     
      How to Read Balance Sheets - Software Edition
 
  Most people somewhat understand income statements, but few understand balance sheets.
 
  Read on for the key takeaways🧵👇
 
 
         onlycfo.substack.com/p/how-to-read-…  
 
             @OnlyCFO:  
 
     
      A balance sheet is a snapshot at a point in time of a company's financial health.
 
  There are three main sections of a balance sheet
 
  -Assets: What a company OWNS
  -Liabilities: What a company OWES
  -Equity: Value attributable shareholders
 
  The below formula must always be true.
 

   @OnlyCFO:  
 
     
      The income statement, which is represented by "net income (loss) on the previous image, is one part of the balance sheet.
 
  The balance sheet represents the inception-to-date performance of a company.
 
  While an income statement represents a specific period of time.
 
             @OnlyCFO:  
 
     
      Here is a SaaS Balance Sheet cheat sheet.
 
  Assets are ordered in terms of liquidity (i.e. time before it is expected to be converted to cash)
 
  Liabilities are ordered in terms of when they are due.
 
  The ordering is broken out as follows:
  1⃣Current: <1 year
  2⃣Non-current: >1 year
 

   @OnlyCFO:  
 
     
      Every change to one section of the balance sheet causes another section to also change to ensure the balance sheet formula holds true.
 
  Assets = Liabilities + Equity
 
  Let's look at an example 👇
 
             @OnlyCFO:  
 
     
      A company sells a $100K SaaS 12-month contract with upfront payment terms. See below for what happens.
 
  Remember that when revenue is recognized on the income statement, it eventually hits equity on the balance sheet.
 
  So the balance sheet equation holds true the entire time.
 

   @OnlyCFO:  
 
     
      Once you understand how a balance sheet works you can understand the health of a company.
 
  I will save how to analyze a balance sheet and determine the health of a business for another post.
 
             @OnlyCFO:  
 
     
      -Please retweet to share my love of balance sheets
  -Follow
 
         @OnlyCFO  
 
      for a good time
 
 
 
         twitter.com/OnlyCFO/status…  
 
                           @OnlyCFO:    
   
           
            How to Read Balance Sheets - Software Edition
   
    Most people somewhat understand income statements, but few understand balance sheets.
   
    Read on for the key takeaways🧵👇
   
   
                 onlycfo.substack.com/p/how-to-read-…