Everything You Need to Know About Finance and Investing - Deepstash
What Is Opportunity Cost

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The impact of opportunity cost on personal and professional life

Evaluating the benefits and drawbacks of different choices

Understanding the concept of opportunity cost

What Is Opportunity Cost

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Starting a Business: Incorporation

Starting a Business: Incorporation

To start a business, you'll need to choose a legal structure. One common option is incorporation. This means that you create a separate legal entity for your business. As Bill Ackman explains in our lemonade stand example, you'll need to file paperwork with your state and come up with a name for your business. Incorporation can offer several benefits, including limited liability and easier access to funding.

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Raising Capital: Selling Stock and Borrowing Money

Raising Capital: Selling Stock and Borrowing Money

Once you've incorporated your business, you'll need to raise capital to get started. This can be done by selling stock or borrowing money. As Ackman explains, selling stock means that you're selling ownership in your company. In our lemonade stand example, Ackman sold 500 shares of stock for $1 each. Borrowing money, on the other hand, means that you're taking out a loan that you'll need to pay back with interest. In our example, Ackman borrowed $250 from a friend.

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Understanding the Balance Sheet

Understanding the Balance Sheet

A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It's important to understand the balance sheet to see how your business is doing financially. In our lemonade stand example, Ackman explains that the balance sheet shows that the business has $500 in cash from selling stock, owes $250 in debt, and has $1,000 in shareholder equity.

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Fixed Assets and Inventory

Fixed Assets and Inventory

Fixed assets are long-term assets that a business uses to generate revenue, such as buildings or equipment. Inventory refers to the products a business has on hand to sell to customers. In our lemonade stand example, Ackman explains that the business will need to buy a lemonade stand for $300 (a fixed asset) and inventory such as lemons, sugar, and cups for $200.

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Understanding the Income Statement

Understanding the Income Statement

An income statement is a financial statement that shows a company's revenue, expenses, and net income over a specific period of time. It can help you understand how much money your business is making and where that money is going. In our lemonade stand example, Ackman explains that the income statement shows that the business will sell 800 cups of lemonade for $1 each, but will need to spend $530 on staffing costs.

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Profit and Loss: Calculating Net Income

Profit and Loss: Calculating Net Income

The bottom line on the income statement is net income, which is the amount of profit or loss a business has made over a specific period of time. In our lemonade stand example, Ackman calculates that the business will have a net income of $170 ($800 in revenue - $530 in expenses).

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Return on Investment: Understanding Your Profit Margin

Return on Investment: Understanding Your Profit Margin

Return on investment (ROI) is a measure of how much money you've earned on your initial investment. It can help you understand your profit margin and make informed decisions about future investments. In our lemonade stand example, Ackman calculates that the business will have an ROI of 17% ($170 in net income / $1,000 initial investment).

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Scaling Your Business: Using Your Profits to Grow

Scaling Your Business: Using Your Profits to Grow

Scaling your business is a challenging but rewarding process. By reinvesting your profits back into your business, you can fuel growth and take your business to the next level. Just remember to have a solid plan in place, manage your cash flow effectively, and stay true to your core values and mission. With these strategies in place, you can achieve sustainable growth and success for years to come.

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CURATED BY

growthsarts

Public Speaking, Coaching, Counseling, Mindfulness & Autogenic Training, Neuro-Linguistic Programming, Computer Engineering, Osteopathy, Traditional Chinese & Ayurvedic Medicine, Asian Languages and culture, Music & Art Therapy, Nada Yoga, Spiritualism

CURATOR'S NOTE

If you're new to finance and investing, you might feel overwhelmed by all the jargon and technical terms. However, understanding the basics can help you make informed decisions about your money. In this article, we'll explore the fundamentals of finance and investing using a simple example: a lemonade stand by William Ackman.

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