I'd now like to talk a little bit about some basic financial statement information. We've talked about the fact that we would cover the financial statements in this course. We'll talk about it for a minute. So the types of the financial statements that you would typically see is a balance sheet, an income statement, and a statement of cash flows. And those statements taken together, particularly if they're audited, because if they're audited, you get them at higher credibility for being accurate. Enables an outside investor or internal investor to evaluate the potential of a project and whether it's worth investing. Now, most financial statements that are done internally are done on a cash basis. And if you look at cash versus accrual accounting, the differences can be significant. They can also have a significant impact on taxes. The accrual method provides a much more complete picture of what's going on. But just as I said, this is not a course in corporate finance. This is also not a course in financial accounting and preparing balance sheets, and income statements, and cash flow statements. So you have to understand that the accrual method is more accurate. It recognized revenues when they're earned, like when you ship a product that's when you earn it because the customer now takes title to it. You recognize expenses when the supplies or services are received by the corporation. The cash method recognizes revenues when the customer pays for the product and they recognize expenses when the supplier, when the company pays the supplier. So that can be of significant difference in a large company. For internal investment proposal, generally speaking, traditional financial statements are not generally required or even useful. The reason is, is that most internal projects are benefiting shared costs. You have a human resources department. You have a marketing department. You have a financial accounting department. You have a sales group, you have a lot of requirement who provides services to all of the individuals protocols. So what you don't need is create a sort much limited, assume that you want to acquire all of those capabilities in the proposal. So a lot of companies will ask you this, their basic understanding of basic financial statement that shows. It's like the revenue strain based upon reasonable assumptions on profit, development, and growth. How much of the, are the incremental costs of generating those revenues. And what economy to scale that exists because you haven't really shared expenses. But it's just useful for you to know that how financial statements work so that when you're asked by let's say, the person, or persons who are looking at evaluating their proposal. Can you explain to me what your contribution to margin is? You should be prepared to, you should know how to discuss that. And that would be a straightforward process looking at revenues, less incremental cost of generating those revenues. Now, if you're coming in and pretending to a corporate finance group, that you want to acquire a new company, completely company, acquire the company. Then you may be required to do generate full financials or they'll have full financials to go probably repressed in guessing it also would be the audited financial statement. So just understand that financial statements are a useful tool. They are generally not full blown financials when you're doing an internal investment proposal. But you should have a general working knowledge of how all these things come together. So you can talk intelligently to the person who's actually developing the decision or making the decision on investment.
