Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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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 👇
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Philip Handke, CFA
Excel & Power BI Training for Finance Professionals ➡️ Join our newsletter or attend a free webinar
3mo
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Great graphic - a lot of people on LinkedIn hate EBITDA but I actually think it can be very useful for doing apples-to-apples earnings comparisons since it removes the effects of operating leverage and financing charges.
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Mighty Digits
3mo
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Everyone loves EBITDA, but that's just one way of many metrics needed to analyze a business!
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Dr. Mukesh Jindal CFA, CFP, Ph.D.
Ph. D. in Asset Allocation | Portfolio Management | Crypto Enthusiast | Financial Planning | Alternative Assets | TEDx Speaker | Most Awarded Family Office Specialist in India
3mo
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Gross Profit is indeed the foundation, paving the way for financial success. It's the starting point that sets the tone for effective financial management, guiding decisions across the metrics landscape.
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Daniyal Ali Wahga Certified Financial Modeler UK
Accomplished Financial Modeler & Excel experienced | Specializing in Financial Modeling, Precise Bookkeeping, and Strategic Financial Analysis | Dedicated to Elevating Business Success through Data-Driven Insights
3mo
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Post on Financial Planning and Analysis. Understanding of EBITDA and Cash Flows.
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Alex Zap
Data Consultant, #AI, #DataScience, #python, #Analytics,#MachineLearning, #Education, #Agile, #cloudcomputing, #automation, #tech, #business, #DigHiSci, #fintech, #edtech, #blogs
3mo
Thanks for explaining the key financial metrics! These are the key KPIs in #fintech world to evaluate the financial health (aka fundamental analysis) of businesses! May I add a specific example that illustrates the pointviz. XOM Fundamentalshttps://wp.me/pdMwZd-371
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Woodley B. Preucil, CFA
Senior Managing Director
3mo
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Josh Aharonoff, CPA Very informative.Thanks for sharing.
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Gaurav Baid, CPA, CA
Balancing Books and Breaking Barriers | CEO at VOCS | Accounting/Legal Outsourcing | AUS, NZ, North America, Middle East, India | CPA (US) | CA (India)
3mo
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Great breakdown of these crucial metrics! Understanding the differences and implications of each is key to business success.
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Aditi Singh
Prusing PGDM(finance)from Thakur Global Business School
3mo
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Great breakdown! I agree that Gross Profit is crucial. It gives a clear picture of a business's earning potential. #BusinessMetrics #Profitability
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Jenpakorn Veerachayap*rnpong
Vice President Sales and Marketing - Consumer Healthcare I INSEAD
2mo
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GP is like the top button of our shirt, if we put it properly, we will look beautifully!
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Nikhil Borole
2 Million+ Content Views || Test Engineer || Inbound Outbound Marketing || Manual Testing || API Testing || SDLC || STLC || Bug Report || Jira || Funtional Testing
3mo
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Thanks for breaking down these crucial metrics, Josh Aharonoff, CPA! Understanding the differences and implications of gross profit, net income, EBITDA, and cash flows is essential for making informed financial decisions. Your expertise is truly invaluable.
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Muniraj Sobha Limited
FA/FC/Finance Mgr, Budgeting,Financial reports,Cashflow forecasting,Review financial reports,Profit planning,Daily reporting,Manage investment strategiesBRS/Accounts Payables& Receivable/P&L/GST /TDS /PF/ESI/PT/Salary|
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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 operations
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Mike Finger
4 Successful Business Exits of My Own - Are You Ready for Yours?
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“My business is worth way more than that,” he said.“Not based on these results,” I replied laying down his financials.“Oh . . . What? . . . No! . . .” he sputtered out.EBITDA (pronounced e-bit-da) = Earnings Before Interest, Taxes, Depreciation, and AmortizationEBITDA is a financial measure that bankers, accountants, prospective buyers, etc. use to determine the actual financial results generated by a business. They are the results that survive all the risks and hit your tax return. And make no mistake, your small business EBITDA lives a risk filled life.And its biggest risk . . .Is You.That’s right.You, the small business owner, and your good intentions . . . are what usually create the EBITDOH-NO.--“I don’t understand,” he said. “I reinvested all my profits back in the business.”“These were real profits?” I asked. “Profits that made it to your tax return?”“Well, no,” he replied. “When I showed a profit early in the year, I’d spend that money in the business.” “O.K.,” I replied, “But keep in mind as we look back on those transactions now, they aren’t profits . . . they are expenses.”“What are you talking about?” he responded frustrated. “Reinvesting is what I was supposed to do. Now you’re saying I’m being punished for trying to grow the business?”“Well . . . yes . . . kinda . . .I guess”. I responded sloppily.“Explain,” he directed.“OK, but so I understand clearly . . . you think the value of your business should be higher for making these ‘investments’, right?” I asked.“Yes!” he said energetically.I responded, "Then I guess the question is this: did the investments pay off? Can you show me where the money you put back into the business produced results? Can you point out where those investments created value?”“Well not yet,” he said quickly. “But those results are coming.”“I know you believe that” I said. “But your buyer wants proof.” “All the investments you’ve made are clear to you. All the times you traded profit for a new hire, or additional money spent on marketing, or other areas . . . you see all those things as reinvested profits.”“Because that’s what they were,” he replied defiantly.“But your prospective buyer only sees a business that never made any money,” I continued.“For the buyer, your financial statements are not proof of your investments . . .they are proof that your investments didn’t pay off,” I concluded. “Oh . . .No . . . wait,” he started to respond.Then he stopped, looked at me for a long time, and finally said “Oh, Sh . . .”There it is . . .your EBITDOH-NO.--Small business owners . . .Grow your business.Invest.Re-invest.But understand that your buyer wants to see tangible, realized, verifiable, “actually hit the year-end tax return” results.Results. That’s what allows you to prove the value of your investments . . . . . . and sell your small business.#business#smallbusiness#entrepreneurship
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Sean Donnelly
Financial and Lean strategies for best business performance
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Achieving your 2024 budgetMost businesses would now have their 2024 budgets fully or partially completed.But how they are built and used, how often they are updated and their role in driving business performance varies significantly.How important is your business budget to you and how do you use it?Is it a vital tool to ensure your business achieves its goals or is it something your finance staff pay more attention to than what you and other managers do?Is it used just as a control mechanism for spending (which is vital) OR is your budget an action plan with growth targets each manager commits to and is expected to achieve?If the budget is constructed by taking the current year’s data and just adding certain percentages to sales and expenses, that’s not a good sign. A properly constructed budget would be built from the ground up by quantifying sales and cost units into a profit and loss account, cash flow and balance sheet. The impacts of changes in anything can then be shown in the P&L and bank balance.Of course, the last few years have thrown some of the greatest challenges at business predictions through Covid, Ukraine war impacts on energy prices, materials shortages and inflation. As the many global threats seem to escalate the importance of having a properly formulated financial plan tested for the impacts of various factors will greatly ensure your chances of success.We would all love more certainty in our businesses but the only likelihood is increased volatility.Having a business and financial plan fully embraced by all your team can give you the best chance of making the absolute best of whatever challenges 2024 throws at your business.If you are interested in discussing whether your procedures might be improved, just contact me for a chat.
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Josh Aharonoff, CPA
Josh Aharonoff, CPA is an Influencer
Fractional CFO | 300k+ Finance & Accounting Audience | Founder & CEO of Mighty Digits
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Analyze a business with just a Balance Sheet 🧐Most people think all 3 Financial Statements are created equally…But to me, there’s one statement that is SUPREME to all the othersAnd that’s the Balance Sheet➡️ What’s so special about a Balance Sheet?Perhaps a better way to look at this would be what are the limitations of the other statements…1️⃣ The Profit and Loss isn’t connected to any other reportsIt’s an independent report that show’s you how much you earned in incomeand how much you incurred in expenses…But it leaves you clueless as to what you OWN, and what your obligations are to creditors + owners2️⃣ The Statement of Cash Flows does not contain any unique dataWhat do I mean by that?The Statement of Cash Flows just pulls from your Income Statement and Balance SheetIt doesn’t show you new information that you can’t find on those 2 statementsand it’s pretty easy to generate on your own*Note: This is mainly in regards to preparing information using the indirect method, which is the most commonTo sum it up…the Balance Sheet contains data from your Profit & Loss…as well as unique data you won’t find elsewhere➡️ How can you analyze a business with just a Balance Sheet?A few ways…1️⃣ Calculate net income by taking the ▲ in Retained Earnings2️⃣ Create a cash flows statement by taking the ▲ in all balance sheet accounts, other than cash3️⃣ Analyze key ratiosHere are 5 that you can review▪️Current ratio → compares current assets to current liabilities▪️Debt to Equity ratio → Compares total debt to shareholders equity▪️Return on Assets → Compares net income to total assets▪️Operating Cash Flows ratio → compares operating cash flows to total debt▪️Return on Equity → measures net income as a % of shareholders equityThat’s my take on how to analyze a business with just a Balance SheetWhat would you add?Let us know by joining in on the discussion in the comments below 👇
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Melanie Perez
Junior Consultant for FairValue Advisors | Business Valuation
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🌟 Understanding Profit Margin: A Key Metric for Business OwnersAs a business owner, mastering your financial metrics is essential for success. One such critical metric is the Profit Margin. Here’s a brief guide on what it is, how to calculate it, and why it's vital for your business's health and valuation.📊 What is Profit Margin?Profit margin is a measure of profitability. It shows what percentage of your sales has turned into profits. Simply put, it tells you how much money your business is making beyond the costs incurred.💡 How to Calculate ItTo determine your profit margin, use this simple formula:ProfitMargin=(NetProfit/Revenue)×100Net Profit is your revenue minus all expenses, including cost of goods sold, operating expenses, interest, and taxes.🚀 Why It's Important1. Performance Indicator: It’s a clear indicator of your business efficiency. A higher profit margin means your business is managing its costs well relative to its revenue.2. Comparative Analysis: It allows you to compare your business with competitors and industry standards, regardless of size or scale.3. Strategic Decision-Making: Understanding your profit margin helps in making informed strategic decisions, like pricing, cost management, and identifying growth opportunities.4. Investor Attraction: Investors often look at profit margins to gauge the business's health and potential for future growth.🔍 Why Business Valuation Experts Use Profit Margin1. Valuation: In business valuation, profit margin is an indicator of a company's financial health. It helps experts estimate the company's worth by analyzing its ability to generate profits efficiently.2. Sustainability and Risk Assessment: It assists in understanding the sustainability of the business and potential risks associated with it.📈 The Importance of Regular CalculationRegular calculation of profit margin keeps you on top of your business’s financial health. It allows you to:- Identify trends and make necessary adjustments.- Gauge the impact of your business strategies.- Prepare for financial discussions with investors or lenders.🎯 What is a Good Profit Margin?Determining a "good" profit margin varies across industries. For instance, the tech industry often sees higher margins than retail. Generally, a 10% margin is average, 20% can be considered good, and 5% can be considered low. However, it's crucial to benchmark against industry standards to get a realistic picture, since average and median profit margins vary by industry.In conclusion, profit margin isn’t just a number; it’s a reflection of your business's operational effectiveness. By regularly calculating and analyzing your profit margin, you can make strategic decisions that drive growth and enhance your business's value.🔗 Stay tuned for more insights on business metrics that matter!#FairValueAdvisors #FVA #BusinessValuation #Valuation #BusinessGrowth #ProfitMargin #FinancialHealth #BusinessValuation #Entrepreneurship
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CFO Solutions_LLC
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If you want your business to be more profitable in the new year, you can’t simply hope for the best. You must take steps to move your business toward your goals, and the only way to do that is by creating a plan.As you look ahead to 2024, ask yourself:👉Where is your business doing well? How can you build off that success?👉Where is your business not doing well? What can you do to improve?👉How is your cash flow? Do you need to secure investments or loans?👉Do you have a business budget? Did you stick to it? Do you need to adjust it?👉What are your primary profit drivers? How can you increase profit margins?👉What changes in the market may impact your business?👉What economic conditions may impact your customers’ buying decisions?👉What impacts may affect your operating costs?This is just one way to get ready for a more profitable 2024. Get our entire end-of-the-year checklist to prep your business here → https://zurl.co/IdRc#SmallBiz #SmallBusiness #2024Planning
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Integra Business Brokers
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When the time comes to sell your business, getting the maximum price is our goal. This article shares some valuable tips on how to prepare your business to get the best price. Integra Business Brokers also offers a free business valuation to help you complete step #2- Get an Estimate of Your Businesses worth. Let us know if we can help.
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Tim Dalton
President at Integra Business Brokers
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When the time comes to sell your business, getting the maximum price is our goal. This article shares some valuable tips on how to prepare your business to get the best price. Integra Business Brokers also offers a free business valuation to help you complete step #2- Get an Estimate of Your Businesses worth. Let us know if we can help.
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Noah Rosenfarb, CPA
Helping the Half Percent Become Rich Beyond Money
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Mistake Alert: Leaving your books solely in the hands of your accountant.Here’s why:When handling your money, it's good to double-check.Each month, when you get your bank statement, take some time to look it over.Check the starting balance, all the transactions, and the ending amount.Look at the deposits. Do they match your sales on the profit and loss report?If they don’t, investigate further.Do the same with your expenses.Make sure they're correctly shown on your profit and loss report.Also, pay attention to the payments to different suppliers. Do you know each and all of them?Be aware: fake suppliers are a common trick.Some business owners might miss small payments, thinking, "Who’d spot a $12 difference?"Always be the business person who spots these things.By staying alert, you protect your business from small mistakes that can add up.After all, being thorough is a key trait of a successful businessperson.
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John Brewer
Financial Adviser at Shawfield Wealth Management, Trusted Financial Planner for Dentists, Business Owners & HNW professionals in England
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If you're an early-stage business owner, you’re likely bursting with ideas for your company’s growth. You must plan this phase carefully; a key reason many small businesses fail is not lack of demand for their product or service, but because they grow too quickly and run out of cash.
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