Business Plans For Dummies®, 2nd Edition

Chapter 10. Figuring Out Financials

In This Chapter

• Understanding a profit and loss account

• Interpreting the balance sheet

• Examining cash flow

• Evaluating financial ratios

Numbers. Some people love them; others are bored by them; still others begin to stammer, shake and exhibit other physical signs of distress around them. But almost everyone agrees that, love 'em or hate 'em, numbers are the way that we keep track of things – football, cholesterol, the stock market and our latest business venture. There's a lot more to numbers than simply the score at the end of the game or the final Footsie closing, however. When they're put together in the right ways, numbers paint detailed pictures and tell stories about everything from the career of a football player to the state of the global economy.

You're probably familiar with the numerical snapshots that a bank requires when you want to borrow money for a new car, a bigger house, or the caravan in Devon that you've always wanted. Those snapshots always include a profit and loss account, as well as some sort of balance sheet. The profit and loss account tells the bank where you get your money and where you spend it. The balance sheet lists the value of all the things that you own and balances it against the money that you owe, including your car loans, mortgages, credit cards and even personal IOUs.

Financial statements tell the bank a great deal about you, and the bank learns even more by taking numbers from the statements and calculating a load ...