What is Net Income vs Free Cash Flow? | Brian Stoffel posted on the topic | LinkedIn (2024)

Net Income vs Free Cash Flow - VisualizedThey are NOT the same thing!It took me a long time to grasp the difference.Seeing it visually helped me to understand it.Here's the key difference:💰 NET INCOME🔎 FOUND ON: Income Statement🔢 ACCOUNTING: Accrual➗ FORMULA: Revenue - All Expenditures = Net IncomeNet income measures a company’s profitability on the income statement using accrual accounting.It shows how much profit a company earned, in theory, during the period.It's an accountant's opinion of profit.Since it's an opinion, it can be easily manipulated.💰 FREE CASH FLOW🔎 FOUND ON: Cash Flow Statement🔢 ACCOUNTING: Cash➗ FORMULA: Operating Cash Flow - Capital Expenditures = Free Cash FlowFree cash flow measures the actual cash flow available to shareholders on the cash flow statement using cash accounting.It shows how much cash was generated by the company during the period.Since it measures actual cash generation, it's much harder to manipulate than Net Income.Remember: Net Income is an opinion. Free Cash Flow is a fact.Both numbers are important, but when forced to choose, I'll take free cash flow every time.Which questions do you have? Let me know in the comments section.***P.S. Want to level up your accounting skills? Join me for a FREE webinar on Wed, Feb 14th at 12:00 noon EST.Topic: 10 Metrics Every Investor Must KnowRSVP here:https://lnkd.in/g55kcsWAIf you found this post useful, please share (repost ♻️) to help make LinkedIn a better platform for

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Net Income vs. Free Cash FlowThey are NOT the same thing!Here's the difference:💰 NET INCOME🔎 FOUND ON: Income Statement 🔢 ACCOUNTING: Accrual➗ FORMULA: Revenue - Expenditures = Net IncomeNet income measures a company’s profitability on the income statement using accrual accounting. It shows how much profit a company earned, in theory, during the period.It's an accountant's opinion of profit. Net Income can be easily manipulated.💰 FREE CASH FLOW🔎 FOUND ON: Cash Flow Statement🔢 ACCOUNTING: Cash➗ FORMULA: Operating Cash Flow - Capital Expenditures = Free Cash FlowFree cash flow measures the actual cash flow available to shareholders on the cash flow statement using cash accounting.It shows how much cash was generated by the company during the period.Free cash flow is much harder to manipulate than Net Income.Remember: Net Income is an opinion. Free Cash Flow is a fact.Both numbers are important, but when forced to choose, I'll take free cash flow every time.Was anything confusing? Please let me know below. I'll be happy to explain further.***➕ FollowLong Term Mindsetfor more content like this.Want to master the basics of accounting (for free)?Enroll in our free, 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) →https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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Get your books straight, take the free accounting 101 course,ACCOUNTING FUNDAMENTALS1. Chart of accounts -https://bit.ly/3MnlEx52. Debit and credit -https://bit.ly/3GsI4cp3. Cash vs. Accrual accounting -https://bit.ly/3ZLy70p4. Accounting principles -https://bit.ly/3zF1Mh95. Accounting cheat sheet -https://bit.ly/3ZDapUg6. A guide to finance and accounting -https://bit.ly/3zrgAA97. Accounting on a one-pager -https://bit.ly/3LOhgp5----------ACCOUNTING ENTRIES8. Revenue types -https://bit.ly/40OkmiN9. COGS vs. OPEX -https://bit.ly/43dsT0v10. CAPEX vs. OPEX -https://bit.ly/3ZRhYXe11. Other income and expenses -https://bit.ly/3V5aHCo12. Asset types -https://bit.ly/3ZV90Zc13. Owner’s equity -https://bit.ly/3LvjgC914. Liability types -https://bit.ly/3mjXWas15. Common journal entries -https://bit.ly/3Vq5fug----------FINANCIAL STATEMENTS16. Financial statements 101 -https://bit.ly/3KJsPP017. Financial statements in 2 min -https://bit.ly/40OQOll18. The accounting equation -https://bit.ly/3pab3vC19. The income statement -https://bit.ly/3m0wLRL20. The balance sheet -https://bit.ly/3KHym8z21. The cash flow statement -https://bit.ly/40rBaw1

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How to analyze an Income Statement:Ask these 11 questions:1: Does revenue consistently grow?→Analyzing revenue trends over time can help assess the company's growth and stability.2: What is the gross margin?→Gross margin, which is gross profit divided by revenue, indicates how efficiently the company manages its production costs.3: Is the gross margin stable? Expanding? Contracting? Why?→Changes in the gross margin trend provide insights into the company's pricing power with consumers and cost control measures with suppliers.4: Are there research + development expenses?→Research & Development expenses indicate the company's has to continuously innovate to drive future growth.5: Are there selling + marketing expenses?→Big selling and marketing expenses indicate the company has to spend heavily to promote its products or services.6: What are the company's biggest operating expenses?→Identifying the biggest expense, such as labor or cost of goods sold, can pinpoint the areas where cost management is critical.7: What is the company's operating margin?→Operating margin, which is operating profit divided by revenue, measures how efficient a company is at converting revenue into profits.8: Does the company have any non-operating expenses?→Looking for non-operating expenses like interest payments or one-time charges is essential for understanding the impact of financial activities outside the company's core operations.9: What is the company's net profit margin?→Net profit margin, which is net profit divided by revenue, indicates the overall profitability of the company after all expenses.10: Is the company profitable on a Non-GAAP basis?→Looking at non-GAAP profitability enables you tp understand if the company's profit picture differs when certain accounting adjustments are made.11: Is the company profitable on a GAAP basis?→Assessing profitability on a Generally Accepted Accounting Principles (GAAP) basis provides insight into whether the company complies with standard accounting rules and is profitable within that framework.***➕ Follow Long Term Mindset indset for more content like this.Want to master the basics of accounting (for free)?Enroll in our email-based course: Financial Statements SchoolGet started here (It's free) → https://lnkd.in/eKbRV7g6If this post was helpful, repost it ♻️ to share with your audience.

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🚀 Mastering the Accounting Cycle: Your 10-Step Checklist! 📊🔍 Confused about the Accounting Cycle? Let's break it down into simple steps! 📝The accounting cycle may seem complex, but it's the backbone of our industry, ensuring accuracy and reliability in financial data. Here's your easy 10-step checklist to understand and navigate the accounting cycle:🔹 1. Identification of Transactions:Start by recognizing economic events relevant to the business. Whether it's a sale, a purchase, or any financial activity, if it can be measured, it begins here🔹 2. Documenting Transactions:Documentation is key! Ensure every transaction has a paper trail, whether it's through invoices, receipts, or purchase orders🔹 3. Journal Entries:Transactions are recorded in the general journal using the double-entry system, impacting at least two accounts.🔹 4. Posting to Ledger:Entries from the general journal are transferred to specific accounts in the general ledger, providing a clearer picture of each account's status.🔹 5. Trial Balance:Prepare a trial balance to ensure debits match credits, serving as a preliminary check before moving forward.🔹 6. Adjusting Entries:Adjustments are made for accruals, prepayments, and estimated items to reflect the true financial position.🔹 7. Adjusted Trial Balance:After adjustments, prepare another trial balance to ensure everything still aligns.🔹 8. Financial Statements:Bring data to life with refined income statements, balance sheets, and cash flow statements.🔹 9. Closing the Books:Zero out temporary accounts like revenues, expenses, and dividends to prepare for the next accounting period.🔹 10. Post-Closing Trial Balance:Conduct a final check to ensure balanced books, with only permanent accounts remaining active.👉 Did I miss anything? Please Comment🌟 Did you enjoy this content? 🤔✨ Here’s how you can show your appreciation: 👍🏼💬Engage by liking and commenting to share your thoughts! 📣#Debit #Credit #AccountingBasics #FinancialEducation #DoubleEntry #Bookkeeping #BusinessAccounting #FinancialManagement #AccountingPrinciples #FinancialLiteracy #DebitsAndCredits #accountingcycle #FinancialReporting

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📊 Unlocking the Power of Accounting Part 1: Mastering the Vital 20% for 80% Comprehension! 📚Hey #LinkedInCommunity! 💼🌐Ever felt overwhelmed by the complexities of accounting? I've discovered that by focusing on just the essential 20% of accounting concepts, we can gain a remarkable 80% understanding of this crucial field. 🧠💡📌 **1. Double-Entry Bookkeeping** : The foundation of accounting, where every transaction has a dual effect on the balance sheet. Understand this, and you're well on your way!📌 **2. Assets, Liabilities, Equity**: The fundamental accounting equation (Assets = Liabilities + Equity) helps us grasp how a company's resources are financed.📌 **3. Revenue and Expenses**: These determine a company's profitability. Knowing how they're recorded and recognized sheds light on financial performance.📌 **4. Cash Flow**: Vital for business survival. Learn the three key sections - Operating, Investing, and Financing - to comprehend how cash moves.📌 **5. Financial Statements**: The trio of Income Statement, Balance Sheet, and Cash Flow Statement offer a snapshot of a company's health and performance.📌 **6. Accrual vs. Cash Accounting**: Understanding when revenue and expenses are recognized (accrual) versus when actual cash changes hands (cash) is pivotal.📌 **7. Depreciation and Amortization**: Learn how assets' values decrease over time, impacting financial statements.📌 **8. Cost of Goods Sold (COGS)**: Vital for businesses selling products. It's the cost to produce or purchase items being sold.📌 **9. Gross Margin and Net Profit**: Calculated from COGS and revenue, these indicators reveal profitability at different stages.📌 **10. Financial Ratios**: Ratios like liquidity, solvency, and profitability provide insights into a company's financial health.Mastering these key concepts empowers us to decode financial reports, make informed decisions, and communicate effectively with finance professionals. Let's demystify accounting together! 📊🔍🔢#AccountingSimplified #FinanceDemystified #LearningJourney #acccounting #accountingcareers Looking forward to your thoughts and insights! 👇🤝Repost and comment for better Reach.

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📊 Embarking on a Journey Through Basic Accounting Principles 📚Hello everyone,Today, let's take a step back to the fundamentals of accounting. 🧮 Whether you're a business owner or simply curious about the financial world, understanding these basics can empower you to navigate financial matters more confidently. 💼💰**1. Debits and Credits: Every transaction has two sides – a debit and a credit. Debits represent assets and expenses, while credits signify liabilities, equity, and revenue. They must always balance, ensuring accuracy in financial records.**2. Assets, Liabilities, Equity: The balance sheet is divided into these three categories. Assets are what the business owns, liabilities are what it owes, and equity is the residual interest after deducting liabilities from assets.**3. Income and Expenses: The income statement showcases a company's profitability by detailing its revenue and expenses. The goal is to have revenue exceed expenses, resulting in a net income.**4. Cash vs. Accrual Accounting: Cash accounting records transactions when cash changes hands, while accrual accounting recognizes transactions when they occur, regardless of cash movement.**5. Matching Principle: This principle pairs revenue with the expenses incurred to generate it, providing a more accurate reflection of financial performance.**6. Consistency and Comparability: Accounting practices should remain consistent over time, allowing for meaningful comparisons between financial periods.Mastering these foundational concepts paves the way for a deeper understanding of business finances. Feel free to ask questions or share your insights – let's embark on this journey of financial knowledge together!#BasicAccounting #FinancialFoundations #BusinessFinance #AccountingPrinciples #FinancialLiteracy #Empowerment

simplest & easiest way to understand

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P&L Statement, Visualized (by Brian Feroldi)If you're in business, you MUST understand how a Profit & Loss Statement works.P&L has many different names, including:→Income Statement→Revenue Statement→Earnings Statement→Operating Statement→Statement of Earnings→Statement 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:💰 REVENUE: Total Sales➖ COST OF GOODS SOLD: The cost to deliver the product or service💰 GROSS PROFIT: Revenue - Cost of Goods Sold➖ R&D EXPENSES: All expenses related to developing products & services➖ SG&A EXPENSES: All other overhead expenses💰 OPERATING INCOME: Gross Profit - Operating Expenses➖ INTEREST EXPENSE: Interest paid to bondholders & banks💰 PRE-TAX INCOME: Operating Income - Interest Expense➖ INCOME TAX: Taxes paid to Governments💰 NET INCOME: Pre-Tax Income - Income TaxTo analyze a P&L quickly, focus on changes in margins.GROSS MARGIN 📊Gross margin is a profitability metric that indicates the percentage of revenue after subtracting the cost of goods sold (COGS).Calculation 🔢Gross Margin = Gross Profit / RevenueGross Profit = Revenue - COGSOPERATING MARGIN 📊Operating margin, or operating profit margin, measures the percentage of operating income (profit after operating expenses) relative to total revenue.Calculation 🔢Operating Margin = Operating Income / RevenueNET MARGIN 📊Net 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 🔢Net Margin = Net Income / RevenueWas this visual helpful? Let me know in the comments section below!----------Enroll in our LinkedIn Learning course "Driving business impact for finance professionals" here:https://bit.ly/4a5fB9lLearn more about the latest trends in finance and accounting by listening to the FinanceMasterPodcast here:https://bit.ly/3NLSt73Or download guides and cheat sheets about finance and accountinghere:https://lnkd.in/eC_zuCU4

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📊 Accounting Demystified: The Accounting Cycle 🔄Hello again, LinkedIn community!Let's dive deeper into the accounting cycle, the systematic process used to record, classify, and report financial transactions.1️⃣ **Step 1: Collect and Analyze Source Documents**: All financial transactions begin with source documents like invoices, receipts, and bank statements. Analyze these to determine how they impact your accounts.2️⃣ **Step 2: Journal Entries**: This is where you record transactions in a journal using debits and credits. For example, when you make a sale, you'd debit Accounts Receivable and credit Sales Revenue.3️⃣ **Step 3: Ledger Posting**: After journalizing, post the entries to the general ledger. Each account has its own ledger page, summarizing all transactions related to that account.4️⃣ **Step 4: Trial Balance**: Periodically, create a trial balance to ensure your debits and credits are in balance. If they're not, it's time to investigate!5️⃣ **Step 5: Adjusting Entries**: At the end of an accounting period, make adjusting entries for items like accrued expenses or prepaid income. These ensure your financial statements reflect the correct balances.6️⃣ **Step 6: Financial Statements**: With your adjusted trial balance, you can now prepare the financial statements: income statement, balance sheet, and cash flow statement.7️⃣ **Step 7: Closing Entries**: At the end of the fiscal year, close temporary accounts (revenue, expense, and dividends) to zero. This process prepares the books for the next period.8️⃣ **Step 8: Post-Closing Trial Balance**: After closing entries, create a post-closing trial balance. Only permanent accounts (assets, liabilities, equity) should have balances.#AccountingCycle #FinancialReporting #AccountingEducation #LearnAccounting