Learn more about business with this collection
The impact of opportunity cost on personal and professional life
Evaluating the benefits and drawbacks of different choices
Understanding the concept of opportunity cost
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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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 mi...
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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 ...
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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 e...
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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 ...
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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 sta...
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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 ...
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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 th...
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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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Cracking the code of the Income Statement
It consists of three main categories:
- Sales or revenue during a given time period. It includes sales (revenue) and Earnings-per-share (EPS)
- Costs and expenses: “Above the line” are the cost of goods sold (COGS), cost of services (COS). “Below t...
Special Considerations
A common mistake companies make in their business model is that they often underestimate the costs of funding the business until it becomes profitable.
Many analysts believe that companies that run on the best business models can run themselves.
- One way analys...
Bonuses and Cost-Shielding
Bonus plans are pretty ubiquitous and many executive bonus structures don't use a bottom-line net income to gauge performance but instead they use figures higher up on the income statement like EBITDA (earnings before interest, taxes, depreciation, and amorization).
Trying bonus-r...
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