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SET THE CONTEXT
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MARKET ANALYSIS AND BUSINESS POSITIONING
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DEVELOP YOUR SALES FORECAST
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DEVELOP YOUR OPERATIONAL AND COST PLAN
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DEVELOP YOUR CASH FLOW PROJECTIONS
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DETERMINE YOUR FINANCING STRATEGY
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INTERPRETING THE INCOME STATEMENT
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INTERPRETING THE BALANCE SHEET
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INTERPRETING THE CASH FLOW STATEMENT
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CONCLUSION
How to analyze the balance sheet
RATIO ANALYSIS
- Liquidity: Ability to pay bills and financial obligations
- Current ratio: Total current assets/total current liabilities: Should be 2.0 or higher
- Quick ratio: Cash and accounts receivable/total current liabilities: Should be 1.0 or higher
- Leverage: Financial strength:
- Debt-to-equity ratio: Total debt/equity. Should be 1.0 or smaller
- Efficiency: The higher, the better
- Return on equity: Net income/total equity
- Return on assets: Net income/total assets
TREND ANALYSIS
- Compare against similar companies or industry averages
- Compare against previous years