### Balance Sheet Record of the assets and liabilities of a company, including: - Current assets: what can be liquidated into cash in a month or so - Noncurrent assets: things which are slower to liquidate like factories - Intangible assets: nonphysical but valuable; brands, intellectual property, etc - Liabilities: money that the company owes Some of these are complicated to value, so the numbers are not necessarily accurate. Total Equity = Total Assets - Total Liabilities ### Cash Flow Statement Record of how much money is coming in vs how much is going out of a company It doesn't directly tell you how the company is doing because - you might spend a lot of money to build a factory one year and make a lot of money selling cars producted by that factory in later years - you might be getting money from investors or debt rather than actual customers However it's almost always accurate, as fudging the numbers here gets you in jail. ### Income Statement Documenting how much money is being made. Total Revenue = Revenue per unit * Units sold + Other Revenue Total Cost = Overhead cost + Cost of Goods Sold (COGS) * Units sold + Other Costs Gross Profit = Total Revenue - Total Cost Gross Margin = Gross Profit / Revenue - Financing, insurance, and other premiums help boost gross profit per unit - Overhead can be spread across multiple products to increase gross profit even if gross profit per unit is negative for some products - As you sell more units, gross profit per unit increases due to constant overhead Examples of costs: - **Overhead**: What it costs to keep the lights on - **Capital Expenditure (CAPEX)**: Asset costs spread over time to account for the depreciation of assets, as opposed to the full cost in the cash flow statement - **R&D:** Also spread across years, similarly fuzzy and potentially inaccurate **Income Before Interest and Taxes (EBIT)** = Gross Profit - Expenses - Lowering this means you pay less taxes - Company cars and other benefits come out of EBIT - Interest payments come out of EBIT, incentivizing debt financing ### Financing Enterprise Value = Equity - Debt Market cap = # of shares * value per share Market valuation is subjectively decided based on the whole picture - When the company value increases, debt stays the same so the value/share increases at a higher rate - Debt financing is attractive because interest payments reduce EBIT and taxes, but too much of it forces businesses to be overly conservative to reduce risk of bankrupcy When a company goes bankrupt: 1. First debtors get their money 2. Then the government 3. Stockholders eat last (preferred stock gets priority)