Financial Modeling Education

Are you making this common mistake in Excel? (I sure did) 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: I've got a bunch of Excel templates you can mess around with... grab them here 👉 https://lnkd.in/eUKMTy93 ~~~ Now, after you watch the video, advanced modelers are going to tell me to use SUBTOTAL(9,[range]) and 𝙩𝙝𝙚𝙮'𝙧𝙚 𝙧𝙞𝙜𝙝𝙩: using SUBTOTAL is the better modeling practice. 𝙃𝙤𝙬𝙚𝙫𝙚𝙧, this is where you might consider breaking away from best practices... Tons of people that 𝙪𝙨𝙚 or inherit the financial model have 𝙣𝙤 𝙞𝙙𝙚𝙖 what the SUBTOTAL function is. "What do you mean you highlight the whole range?" "What's the '9' for?" ~~~ But, most people understand this: =SUM(A,B,C,D) Or even simpler: =A+B+C+D ~~~ My point? You have to keep the audience in mind. Is the audience you? Great. Go wild with SUBTOTAL. But, if it's a less experienced user, you may want to change things up to make the model easier to understand. ~~~ 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eZC9jjpa

Are you making this common mistake in Excel? (I sure did) 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: I've got a bunch of Excel templates you can mess around with... grab them here 👉 https://lnkd.in/e4PEhWM4 ~~~ Now, after you watch the video, advanced modelers are going to tell me to use SUBTOTAL(9,[range]) and 𝙩𝙝𝙚𝙮'𝙧𝙚 𝙧𝙞𝙜𝙝𝙩: using SUBTOTAL is the better modeling practice. 𝙃𝙤𝙬𝙚𝙫𝙚𝙧, this is where you might consider breaking away from best practices... Tons of people that 𝙪𝙨𝙚 or inherit the financial model have 𝙣𝙤 𝙞𝙙𝙚𝙖 what the SUBTOTAL function is. "What do you mean you highlight the whole range?" "What's the '9' for?" ~~~ But, most people understand this: =SUM(A,B,C,D) Or even simpler: =A+B+C+D ~~~ My point? You have to keep the audience in mind. Is the audience you? Great. Go wild with SUBTOTAL. But, if it's a less experienced user, you may want to change things up to make the model easier to understand. ~~~ 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eG_uVhsE

In my entire career 𝗼𝗻𝗲 𝘀𝗸𝗶𝗹𝗹 stands far above the rest, and it’s 𝙣𝙤𝙩 Financial Modeling... ✅ It’s mastery of the 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀. 𝙁𝙖𝙘𝙩: ▪️ I can build FP&A Models b/c I know the Three Statements. ▪️ I can build SaaS Models b/c I know the Three Statements. ▪️ I can build LBO Models b/c I know the Three Statements. ⭐ 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 𝗵𝗮𝘀 𝗮𝗱𝗱𝗲𝗱 𝗺𝗼𝗿𝗲 𝘃𝗮𝗹𝘂𝗲 𝘁𝗼 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿 𝘁𝗵𝗮𝗻 𝗲𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴 𝗲𝗹𝘀𝗲 𝗰𝗼𝗺𝗯𝗶𝗻𝗲𝗱 ⭐ ~~~ So if you're interested... I'd love for you to check out my 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗖𝗼𝘂𝗿𝘀𝗲𝘀. Grounded in best practices, my courses have been featured with Wharton Online, Wall Street Prep, and LinkedIn Learning. (btw, I built them because I was sick of getting absolutely crushed at the office relying on generic instruction that didn't teach me anything I could actually use on the job, so I created these courses so no one else would have to feel that way) 𝙔𝙤𝙪'𝙡𝙡 𝙇𝙚𝙖𝙧𝙣 𝙩𝙤 𝘽𝙪𝙞𝙡𝙙: ✅ 𝗕𝗮𝘀𝗶𝗰 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 (learn or brush-up on core fundamentals) (Skills Gained: 🟢 Beginner) ✅ 𝟭𝟯 𝗪𝗲𝗲𝗸 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 (tactical cash management using the direct method) (Skills Gained: 🟡 Intermediate) ✅ 𝗔𝗱𝘃𝗮𝗻𝗰𝗲𝗱 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 (a true FP&A Operating Model) (Skills Gained: 🟠 Advanced) ✅ 𝗟𝗕𝗢 𝗠𝗼𝗱𝗲𝗹𝘀 𝗳𝗼𝗿 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗘𝗾𝘂𝗶𝘁𝘆 (full simulation of middle-market deal) (Skills Gained: 🔴 Expert) ~~~ Here's what a few people have said: ⭐⭐⭐⭐⭐ "exactly what I needed." ⭐⭐⭐⭐⭐ "best money ever spent." ⭐⭐⭐⭐⭐ "absolute game changer." ⭐⭐⭐⭐⭐ "a master of what he's saying." ⭐⭐⭐⭐⭐ "this will take you to the next level." ⭐⭐⭐⭐⭐ "the best course on modeling I've taken." ⭐⭐⭐⭐⭐ "your courses are underpriced for the value they provide." ~~~ All my years of pain & confusion packed into a few small files, with 𝗹𝗶𝗳𝗲𝘁𝗶𝗺𝗲 𝗮𝗰𝗰𝗲𝘀𝘀 𝘁𝗵𝗮𝘁 𝗻𝗲𝘃𝗲𝗿 𝗲𝘅𝗽𝗶𝗿𝗲𝘀 so you can go at your own pace. All with the comfort of a 𝟭𝟬𝟬% 𝗺𝗼𝗻𝗲𝘆𝗯𝗮𝗰𝗸 𝗴𝘂𝗮𝗿𝗮𝗻𝘁𝗲𝗲, 𝗻𝗼 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻𝘀 𝗮𝘀𝗸𝗲𝗱. To be clear, this is my paid product. 📌 𝙉𝙚𝙭𝙩 𝙎𝙩𝙚𝙥𝙨: Check it out here: https://lnkd.in/eAmU_sgK Hope to see you there. —Chris

In my entire career 𝗼𝗻𝗲 𝘀𝗸𝗶𝗹𝗹 stands far above the rest, and it’s 𝙣𝙤𝙩 Financial Modeling... ✅ It’s mastery of the 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀. 𝙁𝙖𝙘𝙩: ▪️ I can build FP&A Models b/c I know the Three Statements. ▪️ I can build SaaS Models b/c I know the Three Statements. ▪️ I can build LBO Models b/c I know the Three Statements. ⭐ 𝗨𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 𝗵𝗮𝘀 𝗮𝗱𝗱𝗲𝗱 𝗺𝗼𝗿𝗲 𝘃𝗮𝗹𝘂𝗲 𝘁𝗼 𝗺𝘆 𝗰𝗮𝗿𝗲𝗲𝗿 𝘁𝗵𝗮𝗻 𝗲𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴 𝗲𝗹𝘀𝗲 𝗰𝗼𝗺𝗯𝗶𝗻𝗲𝗱 ⭐ ~~~ So if you're interested... I'd love for you to check out my 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗖𝗼𝘂𝗿𝘀𝗲𝘀. Grounded in best practices, my courses have been featured with Wharton Online, Wall Street Prep, and LinkedIn Learning. (btw, I built them because I was sick of getting absolutely crushed at the office relying on generic instruction that didn't teach me anything I could actually use on the job, so I created these courses so no one else would have to feel that way) 𝙔𝙤𝙪'𝙡𝙡 𝙇𝙚𝙖𝙧𝙣 𝙩𝙤 𝘽𝙪𝙞𝙡𝙙: ✅ 𝗕𝗮𝘀𝗶𝗰 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 (learn or brush-up on core fundamentals) (Skills Gained: 🟢 Beginner) ✅ 𝟭𝟯 𝗪𝗲𝗲𝗸 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 (tactical cash management using the direct method) (Skills Gained: 🟡 Intermediate) ✅ 𝗔𝗱𝘃𝗮𝗻𝗰𝗲𝗱 𝗧𝗵𝗿𝗲𝗲 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 (a true FP&A Operating Model) (Skills Gained: 🟠 Advanced) ✅ 𝗟𝗕𝗢 𝗠𝗼𝗱𝗲𝗹𝘀 𝗳𝗼𝗿 𝗣𝗿𝗶𝘃𝗮𝘁𝗲 𝗘𝗾𝘂𝗶𝘁𝘆 (full simulation of middle-market deal) (Skills Gained: 🔴 Expert) ~~~ Here's what a few people have said: ⭐⭐⭐⭐⭐ "exactly what I needed." ⭐⭐⭐⭐⭐ "best money ever spent." ⭐⭐⭐⭐⭐ "absolute game changer." ⭐⭐⭐⭐⭐ "a master of what he's saying." ⭐⭐⭐⭐⭐ "this will take you to the next level." ⭐⭐⭐⭐⭐ "the best course on modeling I've taken." ⭐⭐⭐⭐⭐ "your courses are underpriced for the value they provide." ~~~ All my years of pain & confusion packed into a few small files, with 𝗹𝗶𝗳𝗲𝘁𝗶𝗺𝗲 𝗮𝗰𝗰𝗲𝘀𝘀 𝘁𝗵𝗮𝘁 𝗻𝗲𝘃𝗲𝗿 𝗲𝘅𝗽𝗶𝗿𝗲𝘀 so you can go at your own pace. All with the comfort of a 𝟭𝟬𝟬% 𝗺𝗼𝗻𝗲𝘆𝗯𝗮𝗰𝗸 𝗴𝘂𝗮𝗿𝗮𝗻𝘁𝗲𝗲, 𝗻𝗼 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻𝘀 𝗮𝘀𝗸𝗲𝗱. To be clear, this is my paid product. 📌 𝙉𝙚𝙭𝙩 𝙎𝙩𝙚𝙥𝙨: Check it out here: https://lnkd.in/e6B7y9yk Hope to see you there. —Chris

5 Common Mistakes Beginners Make in Financial Modeling (And How to Avoid Them) 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: grab my ultimate guide here 👉 https://lnkd.in/eCvvCrFc ~~~ 𝟭. 𝗢𝘃𝗲𝗿𝗰𝗼𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗠𝗼𝗱𝗲𝗹 Many beginners think "more complicated = better." In reality, the opposite is true. Focus on creating a model that is easy to understand and modify. Use clear labels, consistent formatting, and basic formulas. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Stick to the 80/20 essentials (Revenue, Gross Profit, EBITDA, and Cash) and make sure each part of your model serves a clear purpose. A straightforward model is more likely to be accurate and easier to audit. 𝟮. 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 Beginners often focus solely on the Income Statement, neglecting the Balance Sheet and Cash Flow Statement. This approach often creates misleading analyses, especially when it comes to forecasting Cash. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Ensure your model integrates all three statements and understand the difference between accrual and cash accounting. This provides a comprehensive view of the financial health of the company and improved cash forecasting. 𝟯. 𝗨𝘀𝗶𝗻𝗴 𝗛𝗮𝗿𝗱𝗰𝗼𝗱𝗲𝗱 𝗡𝘂𝗺𝗯𝗲𝗿𝘀 So many beginners do this but it's a major "no no." Entering numbers directly into your model without using formulas makes it difficult to update and audit. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Use cell references and formulas instead of hardcoding numbers, and make sure input cells are clearly defined. This not only makes your model more dynamic but also much easier to check for errors. 𝟰. 𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗶𝘁𝘆 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 Boss: "What happens if we lose two points on margin?" Me: "...🤔" Many beginners fail to incorporate sensitivity analysis, which at its core is the true purpose of Financial Modeling. You need to understand how changes in assumptions impact outcomes. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Incorporate sensitivity analysis in your model to test different scenarios. The CHOOSE function is great to get this done. The goal is to understand a potential range of outcomes (usually related to cash) based on other changes in the business. 𝟱. 𝗟𝗮𝗰𝗸 𝗼𝗳 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 Without proper documentation, it’s hard to understand the logic and assumptions behind your model, especially after some time has passed or when sharing with others. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Document your assumptions, sources, formatting, and methodologies. Use comments where necessary, consolidate assumptions on a separate sheet and distinguish between inputs and outputs. This makes your model more transparent and easier to follow. ~~~ 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eZC9jjpa

5 Common Mistakes Beginners Make in Financial Modeling (And How to Avoid Them) 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: grab my ultimate guide here 👉 https://lnkd.in/eUN-E-Qc ~~~ 𝟭. 𝗢𝘃𝗲𝗿𝗰𝗼𝗺𝗽𝗹𝗶𝗰𝗮𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝗠𝗼𝗱𝗲𝗹 Many beginners think "more complicated = better." In reality, the opposite is true. Focus on creating a model that is easy to understand and modify. Use clear labels, consistent formatting, and basic formulas. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Stick to the 80/20 essentials (Revenue, Gross Profit, EBITDA, and Cash) and make sure each part of your model serves a clear purpose. A straightforward model is more likely to be accurate and easier to audit. 𝟮. 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝘁𝗵𝗲 𝗧𝗵𝗿𝗲𝗲 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗦𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁𝘀 Beginners often focus solely on the Income Statement, neglecting the Balance Sheet and Cash Flow Statement. This approach often creates misleading analyses, especially when it comes to forecasting Cash. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Ensure your model integrates all three statements and understand the difference between accrual and cash accounting. This provides a comprehensive view of the financial health of the company and improved cash forecasting. 𝟯. 𝗨𝘀𝗶𝗻𝗴 𝗛𝗮𝗿𝗱𝗰𝗼𝗱𝗲𝗱 𝗡𝘂𝗺𝗯𝗲𝗿𝘀 So many beginners do this but it's a major "no no." Entering numbers directly into your model without using formulas makes it difficult to update and audit. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Use cell references and formulas instead of hardcoding numbers, and make sure input cells are clearly defined. This not only makes your model more dynamic but also much easier to check for errors. 𝟰. 𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗦𝗲𝗻𝘀𝗶𝘁𝗶𝘃𝗶𝘁𝘆 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 Boss: "What happens if we lose two points on margin?" Me: "...🤔" Many beginners fail to incorporate sensitivity analysis, which at its core is the true purpose of Financial Modeling. You need to understand how changes in assumptions impact outcomes. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Incorporate sensitivity analysis in your model to test different scenarios. The CHOOSE function is great to get this done. The goal is to understand a potential range of outcomes (usually related to cash) based on other changes in the business. 𝟱. 𝗟𝗮𝗰𝗸 𝗼𝗳 𝗗𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝗮𝘁𝗶𝗼𝗻 Without proper documentation, it’s hard to understand the logic and assumptions behind your model, especially after some time has passed or when sharing with others. 𝘏𝘰𝘸 𝘵𝘰 𝘢𝘷𝘰𝘪𝘥 𝘪𝘵: Document your assumptions, sources, formatting, and methodologies. Use comments where necessary, consolidate assumptions on a separate sheet and distinguish between inputs and outputs. This makes your model more transparent and easier to follow. ~~~ 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eG_uVhsE

See how the COGS and Inventory Relationship impacts your Financial Model 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: the Balance Sheet is tricky... grab a guide here 👉 https://lnkd.in/eYd58Maj ~~~ 𝟭. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆) The company records a purchase of inventory when the goods are received. 𝗡𝗼𝘁𝗲: a company typically records an inventory purchase when the inventory is received and a legal obligation to pay is established, following the accrual basis of accounting, which records transactions when earned or incurred, not when cash changes hands. 𝟭. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗔𝗣) The company records that same inventory purchase as a liability in Accounts Payable. This is because the company still owes payment to its supplier. 𝟯. 𝗣𝗮𝘆 𝗦𝘂𝗽𝗽𝗹𝗶𝗲𝗿 When the bill for the inventory is due, the company pays the supplier in cash. This reduces the Accounts Payable balance and $1,000 of cash leaves the business (in this example). 𝟰. 𝗥𝗲𝗱𝘂𝗰𝗲 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 Once the product is sold to a customer, then the company removes the purchase from the Inventory account and records it as COGS. They are removing the Cost of something they have now Sold (COGS). Revenue does not impact either of these schedules, rather, it is reflected in Accounts Receivable. 𝗖𝗼𝗺𝗺𝗼𝗻 𝗠𝗶𝘀𝘁𝗮𝗸𝗲𝘀 𝘁𝗼 𝗔𝘃𝗼𝗶𝗱 𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗖𝗼𝘀𝘁𝘀: Don’t forget to include all costs (like shipping) in your Inventory. 𝗠𝗶𝘀𝗮𝗹𝗶𝗴𝗻𝗶𝗻𝗴 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀: Make sure you manage your cash flow based on when payments are due. 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝗧𝘂𝗿𝗻𝗼𝘃𝗲𝗿: Keep an eye on how quickly your inventory is sold and replaced. 𝗜𝗻 𝗦𝘂𝗺𝗺𝗮𝗿𝘆 The relationship between Accounts Payable and Inventory is established through the purchase and payment process. As the company acquires Inventory, it records the corresponding liability in Accounts Payable. The balance is settled when the company pays its supplier, demonstrating the interconnected nature of these two accounts. 𝗡𝗼𝘁𝗲 𝗮𝗯𝗼𝘂𝘁 𝗖𝗢𝗚𝗠 While the above steps outline the basic process for non-manufacturing businesses, in a manufacturing business, there's an additional step: the Cost of Goods Manufactured (COGM). COGM includes not only the cost of raw materials but also direct labor and manufacturing overhead costs. These costs are added to the inventory value as they contribute to the process of bringing the inventory to a sellable state, even though they are not part of the physical inventory itself. ~~~ 𝗔𝗯𝗼𝘂𝘁 𝗠𝗲 𝗶𝗻 𝟯 𝗦𝗲𝗰𝗼𝗻𝗱𝘀: 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eZC9jjpa

See how the COGS and Inventory Relationship impacts your Financial Model 👇 ~~~ 📌𝗧𝗼𝗱𝗮𝘆'𝘀 𝗔𝗻𝗻𝗼𝘂𝗻𝗰𝗲𝗺𝗲𝗻𝘁: the Balance Sheet is tricky... grab a guide here 👉 https://lnkd.in/ew4nwaVx ~~~ 𝟭. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆) The company records a purchase of inventory when the goods are received. 𝗡𝗼𝘁𝗲: a company typically records an inventory purchase when the inventory is received and a legal obligation to pay is established, following the accrual basis of accounting, which records transactions when earned or incurred, not when cash changes hands. 𝟭. 𝗥𝗲𝗰𝗼𝗿𝗱 𝗣𝘂𝗿𝗰𝗵𝗮𝘀𝗲 (𝗶𝗻 𝗔𝗣) The company records that same inventory purchase as a liability in Accounts Payable. This is because the company still owes payment to its supplier. 𝟯. 𝗣𝗮𝘆 𝗦𝘂𝗽𝗽𝗹𝗶𝗲𝗿 When the bill for the inventory is due, the company pays the supplier in cash. This reduces the Accounts Payable balance and $1,000 of cash leaves the business (in this example). 𝟰. 𝗥𝗲𝗱𝘂𝗰𝗲 𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝘆 Once the product is sold to a customer, then the company removes the purchase from the Inventory account and records it as COGS. They are removing the Cost of something they have now Sold (COGS). Revenue does not impact either of these schedules, rather, it is reflected in Accounts Receivable. 𝗖𝗼𝗺𝗺𝗼𝗻 𝗠𝗶𝘀𝘁𝗮𝗸𝗲𝘀 𝘁𝗼 𝗔𝘃𝗼𝗶𝗱 𝗢𝘃𝗲𝗿𝗹𝗼𝗼𝗸𝗶𝗻𝗴 𝗖𝗼𝘀𝘁𝘀: Don’t forget to include all costs (like shipping) in your Inventory. 𝗠𝗶𝘀𝗮𝗹𝗶𝗴𝗻𝗶𝗻𝗴 𝗣𝗮𝘆𝗺𝗲𝗻𝘁𝘀: Make sure you manage your cash flow based on when payments are due. 𝗜𝗴𝗻𝗼𝗿𝗶𝗻𝗴 𝗧𝘂𝗿𝗻𝗼𝘃𝗲𝗿: Keep an eye on how quickly your inventory is sold and replaced. 𝗜𝗻 𝗦𝘂𝗺𝗺𝗮𝗿𝘆 The relationship between Accounts Payable and Inventory is established through the purchase and payment process. As the company acquires Inventory, it records the corresponding liability in Accounts Payable. The balance is settled when the company pays its supplier, demonstrating the interconnected nature of these two accounts. 𝗡𝗼𝘁𝗲 𝗮𝗯𝗼𝘂𝘁 𝗖𝗢𝗚𝗠 While the above steps outline the basic process for non-manufacturing businesses, in a manufacturing business, there's an additional step: the Cost of Goods Manufactured (COGM). COGM includes not only the cost of raw materials but also direct labor and manufacturing overhead costs. These costs are added to the inventory value as they contribute to the process of bringing the inventory to a sellable state, even though they are not part of the physical inventory itself. ~~~ 𝗔𝗯𝗼𝘂𝘁 𝗠𝗲 𝗶𝗻 𝟯 𝗦𝗲𝗰𝗼𝗻𝗱𝘀: 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eG_uVhsE

All my Private Equity posts in one giant list (bookmark this post🔖) 👇 ~~~ 📌 Last chance! 👉 https://lnkd.in/e6B7y9yk ~~~ Private Equity is hard to break into, but the underlying concepts are not as complicated as people think. To that end, here's nearly everything I've learned on the job (mostly the hard way) consolidated into one giant list for your reference. 1. All the steps of going through a deal: https://bit.ly/3tub2Wd 2. How I learned FP&A in Private Equity: https://bit.ly/3vlxTUx 3. How the grocery store teaches you Sources & Uses https://bit.ly/3RGEUqs 4. Due Diligence roadmap: https://bit.ly/3RGS7zp 5. Adjusted EBITDA cheat sheet: https://bit.ly/3TKTzDv 6. Modeling pro forma EBITDA Adjustments: https://bit.ly/3tIM31e 7. Visualizing a private equity waterfall: https://bit.ly/3TFedoB 8. Waterfall video: https://bit.ly/3RLRyUW 9. Modeling the pro forma Balance Sheet: https://bit.ly/3S2173v 10. The 4 Phases of a Private Equity fund: https://bit.ly/3RK24Mt 11. A sample Quality of Earnings (QofE) Report: https://bit.ly/48xslFb 12. Visualizing a LBO: https://bit.ly/3TMw8Kc 13. Presenting a consolidation: https://bit.ly/3S1Pqtv 14. Gantt chart of due diligence: https://bit.ly/3REZ8Rn 15. A detailed waterfall: https://bit.ly/3S3fDYI 16. Best qualities of a PE Associate: https://bit.ly/3TMw9he 17. Sample interview question: https://bit.ly/3TMw9Og 18. How does someone in PE make money? https://bit.ly/3S0LBF6 19. Reading a banking teaser: https://bit.ly/3TL53XQ 20. The dark side of Private Equity: https://bit.ly/3RMfmb8 💥𝗕𝗼𝗻𝘂𝘀: CFO checklist if you might be acquired: https://bit.ly/3TM4a18 ~~~ 𝗔𝗯𝗼𝘂𝘁 𝗠𝗲 𝗶𝗻 𝟯 𝗦𝗲𝗰𝗼𝗻𝗱𝘀: 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eG_uVhsE

All my Private Equity posts in one giant list (bookmark this post🔖) 👇 ~~~ 📌 Last chance! 👉 https://lnkd.in/eAmU_sgK ~~~ Private Equity is hard to break into, but the underlying concepts are not as complicated as people think. To that end, here's nearly everything I've learned on the job (mostly the hard way) consolidated into one giant list for your reference. 1. All the steps of going through a deal: https://bit.ly/3tub2Wd 2. How I learned FP&A in Private Equity: https://bit.ly/3vlxTUx 3. How the grocery store teaches you Sources & Uses https://bit.ly/3RGEUqs 4. Due Diligence roadmap: https://bit.ly/3RGS7zp 5. Adjusted EBITDA cheat sheet: https://bit.ly/3TKTzDv 6. Modeling pro forma EBITDA Adjustments: https://bit.ly/3tIM31e 7. Visualizing a private equity waterfall: https://bit.ly/3TFedoB 8. Waterfall video: https://bit.ly/3RLRyUW 9. Modeling the pro forma Balance Sheet: https://bit.ly/3S2173v 10. The 4 Phases of a Private Equity fund: https://bit.ly/3RK24Mt 11. A sample Quality of Earnings (QofE) Report: https://bit.ly/48xslFb 12. Visualizing a LBO: https://bit.ly/3TMw8Kc 13. Presenting a consolidation: https://bit.ly/3S1Pqtv 14. Gantt chart of due diligence: https://bit.ly/3REZ8Rn 15. A detailed waterfall: https://bit.ly/3S3fDYI 16. Best qualities of a PE Associate: https://bit.ly/3TMw9he 17. Sample interview question: https://bit.ly/3TMw9Og 18. How does someone in PE make money? https://bit.ly/3S0LBF6 19. Reading a banking teaser: https://bit.ly/3TL53XQ 20. The dark side of Private Equity: https://bit.ly/3RMfmb8 💥𝗕𝗼𝗻𝘂𝘀: CFO checklist if you might be acquired: https://bit.ly/3TM4a18 ~~~ 𝗔𝗯𝗼𝘂𝘁 𝗠𝗲 𝗶𝗻 𝟯 𝗦𝗲𝗰𝗼𝗻𝗱𝘀: 👋 Hey, I'm Chris Reilly, and I teach Financial Modeling based on real Private Equity and FP&A experience. 📌 See Financial Modeling Courses 👉 https://lnkd.in/eZC9jjpa