Josh Aharonoff, CPA on LinkedIn: Gross Profit vs Net income vs EBITDA vs Cash Flows These 4 metrics are… | 18 comments (2024)

Gross Profit vs Net income vs EBITDA vs Cash FlowsThese 4 metrics are CRUCIAL to understandThey all tell you something different, and have their own time & place1️⃣ GROSS PROFIT➡️ What it means▪️ The amount that’s left over from your revenue after you subtract the cost to deliver your product or service➡️ Where it’s found▪️ The Profit & Loss➡️ What’s the formula▪️ Revenue - COGS➡️ Why it's important▪️ It helps you understand the maximum amount of money your business can earn - if you have a negative gross profit, you don’t have a business!2️⃣ NET INCOME➡️ What it means▪️ The net profitability of your business for a specific period of time - IE all income less all expenses➡️ Where it’s found▪️ The Profit & Loss➡️ What’s the formula▪️ Revenue - COGS - Operating Expenses + Other Income - Other Expenses➡️ Why it's important▪️ This is the ultimate number that you are generating in profitability from your business - if you keep posting losses, you will need to raise capital to sustain your operations3️⃣ EBITDA➡️ What it means▪️ Earnings before Interest, Tax, Depreciation, and Amortization➡️ Where it’s found▪️ No where - it’s compiled separately and is a non GAAP Metric➡️ What’s the formula▪️ Net Income + Interest Expense - Interest Income + Taxes + Depreciation + Amortization➡️ Why it's important▪️ Many feel that EBITDA is a good approximation for cash flows. It is also commonly used to value businesses4️⃣ Cash Flows➡️ What it means▪️ How much cash went in and out of your bank account➡️ Where it’s found▪️ The Statement of Cash Flows (or by taking the ▲ in cash on your balance sheet)➡️ What’s the formula▪️ Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities (Or ending cash - beginning cash)➡️ Why it's important▪️ Cash is king - you can have the most profitable business in the world, but if your expenditures keep outpacing your receipts, you’ll have to raise capital to sustain your operationsIf I had to focus on one, which would it be?For me...Gross Profit.Everything else falls into place once you have great margins...But ofcourse, there are tons of factors to considerWhich one is your favorite?Let me us know by joining in on the conversation in the comments below 👇PS: Want to get Finance & Accounting tips like these delivered right to your inbox? Join 30k+ professionals and subscribe to my newsletter (see link at the top of my profile page ↗ )

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******POST 46******Have a thoughtful Sunday!!^^^^^Gross Profit vs Net income vs EBITDA vs Cash Flows^^^^^These 4 metrics are CRUCIAL to understandThey all tell you something different, and have their own time & place1️⃣ GROSS PROFIT➡️ What it means▪️ The amount that’s left over from your revenue after you subtract the cost to deliver your product or service➡️Where it’s found▪️ The Profit & Loss➡️ What’s the formula▪️ Revenue - COGS➡️ Why it's important▪️ It helps you understand the maximum amount of money your business can earn - if you have a negative gross profit, you don’t have a business!2️⃣ NET INCOME➡️ What it means▪️ The net profitability of your business for a specific period of time - IE all income less all expenses➡️ Where it’s found▪️ The profit & Loss➡️ What’s the formula▪️ Revenue - COGS - Operating Expenses + Other Income - Other Expenses➡️ Why it's important▪️ This is the ultimate number that you are generating in profitability from your business - if you keep posting losses, you will need to raise capital to sustain your operations3️⃣ EBITDA➡️ What it means▪️ Earnings before Interest, Tax, Depreciation, and Amortization➡️ Where it’s found▪️ No where - it’s compiled separately and is a non GAAP Metric➡️ What’s the formula▪️ Net Income + Interest Expense - Interest Income + Taxes + Depreciation + Amortization➡️ Why it's important▪️ Many feel that EBITDA is a good approximation for cash flows. It is also commonly used to value businesses4️⃣ Cash Flows➡️ What it means▪️ How much cash went in and out of your bank account➡️ Where it’s found▪️ The Statement of Cash Flows (or by taking the ▲ in cash on your balance sheet)➡️ What’s the formula▪️ Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities (Or ending cash - beginning cash)➡️ Why it's important▪️ Cash is king - you can have the most profitable business in the world, but if your expenditures keep outpacing your receipts, you’ll have to raise capital to sustain your operations. #entrepreneurs #financialanalysis #cfoinsights #businessterms #ratioanalysis #ratios Kunal Shah Fincosis CFO Services

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Last revised my OK Limited estimates in July 2022The business missed my FY2023 revenues estimates.Constituting GP is Other Income - no footnotes to help us understand it’s composition. Take that out & monetary gains too, EBIT turns negative.My forecasted FY2023 revenue ZW$399 billion Actual Revenue reported ZW$311 billion A lot of issues needs explanations. For example;Capex for the just ended period ZW$6 billion and a ZW3 billion dividend was declared - equivalent to 50% of their CapEx. Interesting that a consistent dividend paying company is bemoaning lack of access to capital for investments. How is that possible? I thought dividends are paid out of FCFs — that is Cash from operations less Capex (investments). A business that has serious investment requirements priorities Capex over dividends with its Cash from operations. Look at this; In the previous period ended March 2022, OK Limited paid a dividend of ZW4 billion & borrowed more just 5 months later, in August 2022, for investment at a USD cost of 8%. How much did they pay in Finance cost? ZW$5.4 billion. Why did they pay a ZW$4 billion dividend from free cash flows when they could have just used that for Capex and avoided borrowing at 8% per annum just a few months later? I wonder. ZW$4 billion was close to 70% of what they required for CapEx and 1.24x higher than their Net borrowings. This is what l think, instead of yearning for funding at a USD cost of 8% per annum and blaming the environment for every outcome, the business should skip paying dividends and use internally generated resources at zero interest cost for investment. This has nothing to do with the macro environment — it is rather a capital allocation issue and this is where the money is. However, these are smart guys, experienced professionals who knows better than me and l want to believe that they have a reason for doing that. They should just explain why in their notes.Disclaimer: this is only for informational purposes. Not a recommendation.

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A business must maintain a stable cash position (liquidity) to have the cash it needs to meet its predictable and unpredictable expenses. The optimum cash balance is having the right amount of cash when needed and at the right cost to the business. But what is the right amount of cash?https://lnkd.in/eq6b48pW#CFO #fractionalcfo #interimcfo

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Do you know the ins and outs of the financials of your business? Knowing your business inside and out ensures your company runs smoothly and can grow.Learn morea bout your EBIT and EBITDA in our ROK blog out now.👇#sbaloans #businessloans #scaling #success #businessfunding #sba

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Business:A balance sheet is a quick picture of the financial condition of a business at a specific period in time. The activities of a business fall into two separate groups that are reported by an accountant. They are profit-making activities, which includes sales and expenses. This can also be referred to as operating activities. There are also financing and investing activities that include securing money from debt and equity sources of capital, returning capital to these sources, making distributions from profit to the owners, making investments in assets and eventually disposing of the assets. Profit making activities are reported in the income statement; financing and investing activities are found in the statement of cash flows.In other words, two different financial statements are prepared for the two different types of transactions. The statement of cash flows also reports the cash increase or decrease from profit during the year as opposed to the amount of profit that is reported in the income statement.The balance sheet is different from the income and cash flow statements which report, as it says, income of cash and outgoing cash. The balance sheet represents the balances, or amounts, or a company's assets, liabilities and owners' equity at an instant in time. The word balance has different meanings at different times.

What is Operating Profit Ratio?-https://lnkd.in/dRG4cEpR Every day businesses deal with numbers and ratios to measure performance in terms of finances, operations and efficiencies. One such measure to measure all these metrics operating profit ratio. It helps to measure the performance of your company for every rupee worth of goods your company has earned. In simpler terms, operating profit margin means how much profit your business makes after the sales of its goods and services.The operating profit ratio is computed by dividing the operating income by the net sales of the company. If the operating margin ratio is high, it means that your business is doing well. In contrast, if your operating profit ratio is lower it means that your business has inefficiencies..#blog #blogpost #operatingprofit #profit #operations #operationsexcellence

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Cash Flow is the life blood of any business and keeping it flowing efficiently is important to making the business sustainable and profitable.Cash flow is simply the money that goes into and out of your bank account. It is understanding the timing of these ins and outs and what causes those timings that allows us to effectively manage our cash.The starting place is to look at the Statement of Cash Flows in your annual financial statements, then understand operating cash flow with a concept called the Working Capital Cycle and finally, how a Cash Flow Budget supports you when managing your cash flow.Statement of Cash Flows.The Statement of Cash Flows addresses timing differences in your cash flow by breaking it down into 3 categories. Cash flow from:1. Operating activities,2. Investing activities, and3. Financing activities.I am going to explain each category in reverse order.1. Financing activities.For any business to operate and grow it needs cash to buy resources. This money usually comes from 1 of 4 sources:i.) Owners and investors. This may be in the form of issuing shares if it is a company or owners accounts in the case of a sole trader or partnership. This will appear in the Net Worth or Equity category on the Balance Sheet.ii.) Borrowings. Money borrowed from other people or organisations such as loans, overdrafts, leases etc that you are likely to pay interest on and will need to repay. These will appear in the Liabilities category on the Balance Sheet.iii.) Creditors. These are organisations or individuals who provide you with goods or services before you pay for them. For example, a supplier delivers goods and issues you an invoice to pay at a later date. These will appear in the Liabilities category on the Balance Sheet.iv.) Profits retained in the business. Profits may be distributed as dividends or drawings to the owners of the business or retained in the business. If they are retained in the business, they will appear in the Net Worth or Equity category on the Balance Sheet as it is effectively the owner’s money being injected back into the business.The financing activities section of the Statement of Cash Flows records the increase or decrease of owners/investors’ money and borrowings over the period of the statement. Creditors/accruals and profit are generally accounted for in operating activities.It is important to note that while we are talking about cash for these categories, when they are reported on the Balance Sheet or Statement of Cash Flows they may no longer be cash as the money may already have been spent on the assets of the business. #Finance #businessfinance #commercial #cashflow #lending

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A simple equation to use in determining profit. Profit = Revenue > Expenses.This equation means for businesses to determine their profit, they must record all the revenue generated and expenses incurred in generating the revenue in the case of a product-based business, the cost of producing or acquiring the product will be recorded for adequate determination of profit.To determine the profit, The cost and expense incurred will be deducted from the revenue generated, and the balance is the profit.Let me explain further.It shows businesses only make a profit when their revenue is more than expenses.That's the basic explanation of how profit is determined.Profit is divided into two.There's Gross profit and there's Net profit.Gross profit represents the part of your revenue that will be available after Cost has been deducted, it represents the part of your revenue that caters to your expenses and profit. Gross profit is really important even though not the final profit, it's as important as the net profit because not having revenue after deducting your cost of Goods to cater for expenses is bad for businesses.Also, the gross profit will enable the business to utilize it in knowing strategy to implement to maximize their profit while minimizing cost.The second profit is known as Net profit, which is the amount left as a profit after necessary expenses that the company incurred in generating the revenue as being deducted, the remaining balance is called Net profit.Net profit is the profitability of a business once all costs, expenses, and taxes have been accounted for and this will let to know whether it's the business is generating a surplus or running a deficit.Gross profit: The part of revenue that remains to cater for your expenses and profit after the cost has been deducted.Net profit: The profit after all costs, expenses, income, and tax have been deducted; it shows the profitability of the business.#accountingwithhassan

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The first step of developing your 12-month cash flow projection is assessing your likely revenue and expenses for each month for a whole financial year. Learn more about this article here:https://bit.ly/3prNoEC#projections #valuation #revenue