depreciation is a funny type of expense, because it's what's called a non cash expense. But that is not money that is leaving your bank account to pay for it. Like if you buy a car, you don't see the depreciation come out of your bank account. You just realize the depreciation at the end of its life when you sell the assets. So amortization is the very similar concept. It's the writing down of an asset over time. However, depreciation is something that happens to tangible assets. Amortization happens to intangible things such as trademarks or copyright.
Brian Feroldi: Financial Statements Explained Simply
Brian Feroldi is a financial educator, YouTuber, and author. He has been intensely interested in money, personal finance, and investing ever since he graduated from college. His mission statement is to spread financial wellness. He loves to help other people do better with their money, especially their investments.
Brian has written more than 3,000 articles on stocks, investing, and personal finance for The Motley Fool. In 2022, Brian’s book Why Does The Stock Market Go Up? was published. The mission of the book is to demystify the stock market. It was written to explain how the market works in plain English. He's also the co-creator of the course, Financial Statements Explained Simply.
Most of us are not accountants, but whether you work in a small business, a large corporation, a non-profit, or a government agency, the numbers define what resources that we have. Being able to understand and speak the language of financial statements is essential for leaders who want to influence decisions. In this episode, Brian and I review how to understand and read one of the most important reports for any organization: the income statement.
Key Points
A few hours of focus on the fundamentals of financial statement can provide you understanding and influence throughout your career.
An income statement (also called a profit and loss statement or P&L) shows revenue, expenses, and profit over a period of time. It’s similar to your personal budget.
Revenue minus cost of goods sold is gross profit.
Subtracting operation expenses from gross profit give you an organization’s operating income or EBIT (earnings before income and taxes).
Depreciation spreads out the cost of tangible assets (equipment, vehicles, buildings) their useful lives. Amortization does the same thing for intangible assets (loans, copyrights, patents).
The “bottom line” is literally the bottom line at the end, either net income or net loss.
Resources Mentioned
Brian Feroldi’s newsletter
Financial Statements Explained Simply (course)
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