Brian Feroldi
I demystify the stock market | Author, Speaker, Creator | 100,000+ investors read my free newsletter (see link)
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How the Income Statement + Balance Sheet link ๐ :๐ INCOME STATEMENTShows a company's revenue, expenses, and net income over a period of time (month, quarter, year).๐ BALANCE SHEETShows a snapshot of a company's assets, liabilities, and equity at a point in time (Sept 30th, 2023).๐ญ TANGIBLE ASSETSAssets you can physically (car, building). Their value on the balance sheet is DEPRECIATED as operating expenses over the asset's useful life.๐ INTANGIBLE ASSETSAssets you can't physically touch (patent, copyright).Their value on the balance sheet is AMORTIZED as operating expenses over the asset's useful life.โ Both depreciation and amortization costs are subtracted as operating expenses on the income statement.โ Financial assets that generate expenses (interest payments on debt) or losses (stock value falls) are subtracted as non-operating expenses on the income statement.๐ฐ Financial assets that generate income (cash generates interest) or profit (stock appreciates) are added as non-operating income on the income statement.โ Net income generated on the income statement is added to retained earnings on the equity side of the balance sheet.Understanding how the three financial statements link is crucial to gaining a comprehensive view of a company's financial health.****๐ P.S. Want to go deeper into analyzing financial statements? Join me for a FREE webinar on how to analyze unprofitable business.RSVP here: https://lnkd.in/eMeJWmPSโ Follow me Brian Feroldi for more content like this.If you found this post useful, please repost โป๏ธ to help make LinkedIn a better platform for all.
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SkillFine
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Great linkages shown between the income statement and balance sheet. Part of revenues that is not realised in cash is recorded as receivables under current assets
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Skills2Talentโข (PMS SaaS for Multi-Collar SME Workforce with AI)
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Thanks for sharing
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Haseeb Ahmed
Accounts Assistant at Sofa Source International
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That is perfect work thanks
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Pieter Slegers
Compounding Quality | Investment newsletter with more than 210,000 subscribers
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Understand this relation is key
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Brian Salcetti, AIFยฎ, CIMAยฎ
CEO, Managing Partner at Sandbox Financial Partners ** Fiduciary ** Forbes Best-in-State Wealth Advisor
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Understanding this link is like having the key to decode a company's financial health.
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Clint Murphy
I simplify psychology, success and money by sharing advice from mentors, expert authors and my life. CFO | Creator | Investor| Entrepreneur
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Love how youโve clearly explained the link - great simple breakdown
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Alfred Elijah
|BSc. Econs. |OND, Acct| Research|Leadership|Tutor
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Thank you for this
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Kyle R. Bell ๐๐
The B2B FinTech Copywriter | I Write Ads, Emails, and Landing Pages for B2B FinTech Companies | The Coconut Loving Wizard of B2B FinTech Copywriting
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The balance sheet and P&L report speaks volumes about the financial solvency or lack thereof of any business, Brian Feroldi.
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Blake Millard, CFAยฎ
Director of Investments, Sandbox Financial Partners
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You've cracked the code on how these financial statements work together! ๐
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Jeffrey Tjendra
Building and backing innovative companies.
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Brian Feroldi this is wonderful. When's your next bootcamp on the 3 fin. statements?
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Brian Feroldi
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20 Most Confusing Finance Terms - Explained ๐กFIXED COSTS VS. VARIABLE COSTSโข Fixed Costs: Costs that do not change with production or sales volume (e.g., rent).โข Variable Costs: Costs that vary with production or sales volume (e.g., materials, direct labor).EBITDA VS. NET INCOMEโข EBITDA: Earnings before interest, taxes, depreciation, and amortization.โข Net Income: Total profit after all expenses, including interest, taxes, depreciation, and amortization.PROFIT VS. REVENUEโข Profit: Net earnings after deducting all expenses. โข Revenue: Total Income generated from sales or services before deducting expenses.CAPEX VS. OPEXโข CapEx: Funds used by a company to acquire, upgrade, and maintain physical assets (PPE, buildings, or intangibles)โข OpEx: Day-to-day expenses to run the business (e.g., rent, utilities).ACCRUAL VS. CASH ACCOUNTINGโข Accrual Accounting: Recording revenues and expenses when they are incurred, regardless of when cash is exchanged.โข Cash Accounting: Recording revenues and expenses only when cash is exchanged.MARKET CAP VS. ENTERPRISE VALUEโข Market Cap: Total value of a company's outstanding shares.โข Enterprise Value: Total value of a company, including debt and excluding cashIs anything still confusing? Let me know in the comments below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eNQcpx-xIf you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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P&L Statement, VisualizedIf you're in business, you MUST understand how a Profit & Loss Statement works.P&L has many different names, including:โIncome StatementโRevenue StatementโEarnings StatementโOperating StatementโStatement of EarningsโStatement of OperationsThe P&L shows a company's profitability at multiple levels over a period of time using accrual accounting.Its purpose is to track a company's revenue, expenses, and profits.Main sections:๐ฐ REVENUE: Total Salesโ COST OF GOODS SOLD: The cost to deliver the product or service๐ฐ GROSS PROFIT: Revenue - Cost of Goods Soldโ R&D EXPENSES: All expenses related to developing products & servicesโ SG&A EXPENSES: All other overhead expenses๐ฐ OPERATING INCOME: Gross Profit - Operating Expensesโ INTEREST EXPENSE: Interest paid to bondholders & banks๐ฐ PRE-TAX INCOME: Operating Income - Interest Expenseโ INCOME TAX: Taxes paid to Governments๐ฐ NET INCOME: Pre-Tax Income - Income TaxTo analyze a P&L quickly, focus on changes in margins.GROSS MARGIN ๐Gross margin is a profitability metric that indicates the percentage of revenue after subtracting the cost of goods sold (COGS).Calculation ๐ขGross Margin = Gross Profit / RevenueGross Profit = Revenue - COGSOPERATING MARGIN ๐Operating margin, or operating profit margin, measures the percentage of operating income (profit after operating expenses) relative to total revenue.Calculation ๐ขOperating Margin = Operating Income / RevenueNET MARGIN ๐Net margin, also referred to as net profit margin or simply profit margin, represents the percentage of net income (profit after all expenses, including interest and taxes) relative to total revenue.Calculation ๐ขNet Margin = Net Income / RevenueWas this visual helpful? Let me know in the comments section below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eKbRV7g6
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Brian Feroldi
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Stock Options vs RSUs vs ESPPWhat's the difference?All of these are forms of stock-based compensation (SBC).SBC is when a company pays its employees in equity instead of cash. If the company does well, the stock can become worth more money over time, which incentivizes the employee to help the organization succeed.TYPES OF SBC ๐๐ฆ๐๐ผ๐ฐ๐ธ ๐ข๐ฝ๐๐ถ๐ผ๐ป๐:โข WHAT: The right to buy company stock at a set price after a certain period.โข RISK/REWARD: High potential gain if stock prices rise, but risky if they fall.โข VESTING: Usually 1-4 years๐ฅ๐ฒ๐๐๐ฟ๐ถ๐ฐ๐๐ฒ๐ฑ ๐ฆ๐๐ผ๐ฐ๐ธ ๐จ๐ป๐ถ๐๐ (๐ฅ๐ฆ๐จ๐):โข WHAT: Shares given to employees, which become fully theirs over time.โข RISK/REWARD: Lower risk than options, since they have value as long as the stock does.โข VESTING: Similar to options, promoting retention.๐๐บ๐ฝ๐น๐ผ๐๐ฒ๐ฒ ๐ฆ๐๐ผ๐ฐ๐ธ ๐ฃ๐๐ฟ๐ฐ๐ต๐ฎ๐๐ฒ ๐ฃ๐น๐ฎ๐ป๐ (๐๐ฆ๐ฃ๐ฃ๐):โข WHAT: Allows employees to buy company stock at a discount.โข RISK/REWARD: Lower risk with immediate value from discounts, though still subject to market changes.โข VESTING: Shorter periods, offering quicker benefits.ADVANTAGES OF SBC:โข Potential for High Returnsโข Alignment of Interestsโข Tax Benefitsโข Wealth Buildingโข Employee Retentionโข Cash Conservation for CompanyDISADVANTAGES OF SBC:โข Risk of Decrease in Valueโข Complexity and Understandingโข Lack of Diversificationโข Market Fluctuationsโข Liquidity Issuesโข Tax ComplicationsVesting is the process by which an individual earns the right to a future benefit, typically shares of stock or rights to a pension, over a certain period of time or upon meeting certain conditions. Follow me Brian Feroldi for more content like this.If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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The ABCs of Accounting ๐ง๐ซA Quick Reference Guide of Accounting Terms.โข Assetsโข Balance Sheetโข Cash Flowโข Debtโข Equityโข Financial Statementsโข Gross Marginโข Historical Costโข Income Statementโข Journal Entriesโข Key Performance Indicatorโข Liquidityโข Market Valueโข Net Incomeโข Owners Equityโข Operating Expensesโข Profitโข Quarterly Reportsโข Revenueโข Solvencyโข Taxesโข Unearned Revenueโข Valuationโข Working Capitalโข XIRRโข Yieldโข Z-ScoreHow many of these terms do you know?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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10 Growth KPIs What gets measured gets managed.Here's a list of growth KPIs every company & investor should know:๐ Revenue Growthโข Measures the increase in revenue over a specific period, typically expressed as a percentage.โ Formula: ((Current Revenue - Previous Revenue) / Previous Revenue) x 100๐ฐ Monthly Recurring Revenue (MRR)โข Tracks the predictable and recurring revenue generated.โ Formula: Average Revenue Per User x Number of Customersโ Gross Margin โขThe percentage of revenue remaining after deducting the cost of goods sold.โ Formula: (Revenue - Cost of Goods Sold) / Revenue)ร100๐ค Customer Acquisition Cost (CAC)โข Calculates how much it costs to acquire each new customer.โ Formula: Sales and Marketing Expense / Number of New Customers Acquired ๐ต Customer Lifetime Value (CLV)โข Assesses the total value a customer brings to the company throughout their lifetime.โ Formula: Average Purchase Value x Average Purchase Frequency ร Average Customer Lifespan๐ค Customer Retention Rate (CRR)โข The percentage of customers who continue to use your product or service over time.โ Formula: (Number of Customers at the End of the Period - Number of New Customers Acquired) / Number of Customers at the Start of the Period) x 100โคต๏ธ Churn Rateโข The rate at which customers stop using or subscribing to your product or service.โ Formula: (Number of Customers at the Start of the Period - Number of Customers at the End of the Period) / Number of Customers at the Start of the Period๐ Customer Satisfaction Score (CSAT)โข The level of satisfaction that customers have with a company's product, service, or overall experience.โ Formula: (Number of Satisfied Responses / Total Responses) ร 100๐ฌ Net Promoter Score (NPS)โข Measures how likely customers are to recommend a company's product or service to others.โ Formula: (% of Promoters) - (% of Detractors)๐ Market Shareโข A company's portion of the total market in terms of revenue.โ Formula: (Your Company's Sales / Total Market Sales) ร 100Which growth metrics do you value most?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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๐๐ฉ๐ ๐๐ ๐๐ฅ๐ฅ ๐๐ ๐ก๐ฃ๐ฉ ๐๐ ๐ฃ๐ฃWhat's the difference?Here's a simplified overview:๐ญ. ๐๐ฐ๐ผ๐ป๐ผ๐บ๐ถ๐ฐ ๐ฉ๐ฎ๐น๐๐ฒ ๐๐ฑ๐ฑ๐ฒ๐ฑ (๐๐ฉ๐):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Evaluates company's financial performance by subtracting the cost of capital from net operating profit after tax.โข ๐ฃ๐ฟ๐ผ๐: Promotes value creation; encourages efficient capital utilization.โข ๐๐ผ๐ป๐: Complex and requires comprehensive financial details.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Ideal for internal performance reviews and managing based on value.๐ฎ. ๐๐ป๐๐ฒ๐ฟ๐ป๐ฎ๐น ๐ฅ๐ฎ๐๐ฒ ๐ผ๐ณ ๐ฅ๐ฒ๐๐๐ฟ๐ป (๐๐ฅ๐ฅ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: The rate where the net present value (NPV) of all cash flows is zero.โข ๐ฃ๐ฟ๐ผ๐: Reflects investment efficiency; facilitates comparison with required returns.โข ๐๐ผ๐ป๐: Multiple results for fluctuating cash flows; assumes reinvestment at IRR.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Effective for comparing project profitability; when the capital cost is unknown.๐ฏ. ๐ก๐ฒ๐ ๐ฃ๐ฟ๐ฒ๐๐ฒ๐ป๐ ๐ฉ๐ฎ๐น๐๐ฒ (๐ก๐ฃ๐ฉ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Calculates the difference between present values of cash inflows and outflows.โข ๐ฃ๐ฟ๐ผ๐: Acknowledges the time value of money; offers a clear profitability measure.โข ๐๐ผ๐ป๐: Needs precise estimation of future cash flows.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Best for assessing absolute investment value; good for comparing various projects.๐ฐ. ๐ฃ๐ฎ๐๐ฏ๐ฎ๐ฐ๐ธ ๐ฃ๐ฒ๐ฟ๐ถ๐ผ๐ฑ (๐ฃ๐ฃ):โข ๐ช๐ต๐ฎ๐ ๐ถ๐ ๐ถ๐: Time required for an investment to generate cash equal to its cost.โข ๐ฃ๐ฟ๐ผ๐: Straightforward and assesses risk and liquidity.โข ๐๐ผ๐ป๐: Ignores the time value of money; doesnโt evaluate overall profitability.โข ๐ช๐ต๐ฒ๐ป ๐๐ผ ๐จ๐๐ฒ: Great for initial project screening or limited funds; focuses on speed of return.Selecting the right metric is crucial for accurate financial analysis and strategic decision-making.Which method do you prefer?Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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What are margins?Here's a simple explanation.Margin refers to the percentage difference between the costs and revenue of products or services. It indicates how much profit a company makes on its sales after covering various costs. Higher margins indicate more efficient operations and stronger financial health.Here are the 6 most important margins to know:๐๐ฅ๐ข๐ฆ๐ฆ ๐ ๐๐ฅ๐๐๐กThe percentage of revenue remaining after subtracting the cost of goods sold. It's a measure of production efficiency and pricing strategy.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: (Revenue - COGS) / Revenue๐ข๐ฃ๐๐ฅ๐๐ง๐๐ก๐ ๐ ๐๐ฅ๐๐๐ก (๐๐๐๐ง ๐ ๐๐ฅ๐๐๐ก): The percentage of revenue remaining after subtracting ๐๐ต๐ฒ cost of goods sold and all operating expenses.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Operating Income / Revenue๐๐๐๐ง๐๐ ๐ ๐๐ฅ๐๐๐ก:Measures earnings before interest, taxes, depreciation, and amortization as a percentage of revenue.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: EBITDA / Revenue ๐ฃ๐ฅ๐๐ง๐๐ซ ๐ ๐๐ฅ๐๐๐ก (๐๐๐ง ๐ ๐๐ฅ๐๐๐ก):The company's profitability before subtracting income taxes.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Earnings Before Taxes / Revenue๐ก๐๐ง ๐ ๐๐ฅ๐๐๐ก (๐ฃ๐ฅ๐ข๐๐๐ง ๐ ๐๐ฅ๐๐๐ก):Measures the percentage of revenue that becomes net income after subtracting all expenses.- ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ถ๐ผ๐ป: Net Income / RevenueUnderstanding margins is crucial for investors, managers, and stakeholders to evaluate a company's operational efficiency. Each margin tells a different story, from production costs to overall profitability, providing a comprehensive picture of the company's financial performance.10 Benefits of Using Margins- Trend Analysis- Pricing Strategy- Risk Management- Financial Planning- Cost Management- Investment Decisions- Comparative Analysis- Operational Efficiency- Performance Incentives- Profitability AssessmentFollow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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What is Working Capital?Here's a simple way to understand this confusing finance term...Working capital -- aka Net Working Capital -- is the difference between a company's current assets (expected to be used/consumed/converted into cash <1 year) and current liabilities (debts that are expected to be paid off in <1 year).๐กWhy is working capital important?Working Capital is a quick way to assess a company's liquidity, which is its ability to meet its short-term obligations.It serves as an indicator of a company's financial health.If working capital is positive, it indicates that a company has sufficient resources to cover its short-term financial needs.If working capital is negative, it indicates that a company may face financial difficulties.There are three ways to calculate working capital:1๏ธโฃ THE SIMPLE METHODCurrent Assets - Current LiabilitiesThis is the most common method and easiest to calculate.2๏ธโฃ THE NARROW METHOD(Current Assets - Cash) - (Current Liabilities - Debt)This method excludes cash & debt, which can be useful for comparing companies with different capital structures.3๏ธโฃ THE SPECIFIC METHOD:Accounts Receivable + Inventory - Accounts Payable:This method focuses on the cash conversion cycle of a business, which is the time it takes to convert inventory into cash.Was this helpful? Let me know in the comments section below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/e9rrxPt3If you found this post useful, please repost โป๏ธ to share with your audience.
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Brian Feroldi
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How to analyze a Cash Flow Statement in <2 minutes:Understand these cash flow formulas.The Cash Flow Statement shows a company's profitability at multiple levels over a period of time using cash accounting.3 Main sections:๐ฐ OPERATING ACTIVITIESShows cash inflows & outflows from normal operations๐ฐ INVESTING ACTIVITIESShows cash outflows from capital expansion & long-term investments๐ฐ FINANCING ACTIVITIESShows cash changes to the companyโs capital structure6 Cash Flow Ratios to watch๐ณ LIQUIDITY RATIOSCash Ratio = Cash Balance โ Current LiabilitiesCurrent Ratio = Current Assets โ Current Liabilitiesโฑ COVERAGE RATIOSCash Coverage Ratio = Cash Balance โ Interest ExpenseDebt To OCF = Total Debtโ Operating Cash Flowโ VALUATION RATIOSPrice to CFFO = Share Price โ Cash Flow From Operations Per SharePrice to FCF = Share Price โ Free Cash Flow Per ShareWhich ratio do you think is the most useful? Let me know in the comments below!Follow Brian Feroldi for more content like this.***P.S. Want to master the basics of accounting (for free)?I created a 5-day, email-based course that explains the Balance Sheet, Income Statement, and Cash Flow Statement in plain English.Check it out here (It's free) โ https://lnkd.in/eKbRV7g6If you found this post useful, please repost โป๏ธ to share with your audience.
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