Finance fundamental for non finance business leaders – Anil Lamba on Finance #Finance

let me introduce you to the two basic Financial Statements one is called a Profit loss account and the other is called a Balance Sheet and to begin with let me ask you some very very elementary questions and the first of these is can you

tell me why is a Profit and loss account made you know this is actually a no-brainer because even if you never heard of it in your life before reading the title tells you why it has been made a Profit and loss account has made to find out whether an organization

has made a Profit or a loss but a slightly more philosophical question would be why would you want to know are you making Profits or not that number on the top right hand side of the Profit loss account sales is called the top line and the figure

in the bottom left hand side of the Profit loss account is called the bottom line now can you tell me what is business all about are we in business to generate top lines or are we in business to generate bottom lines it’s amazing how many organizations concentrate put in all

their energies into the top line and sometimes tragic things happen that the top line of the organization is going up and the bottom line is coming down folks you have defeated the entire objective of setting up the business you will appreciate there cannot be a managing director alive who can

afford to say you know I don’t need to know how to read a Balance Sheet if he says so either is not going to remain a managing director for long or the organization whose managing director he is may not remain for long sooner or later everybody realizes their ability to lead

successful businesses largely depends on their ability to read Balance Sheets and in order to learn how to read you don’t need to know how to make the Profit and loss account lists out expenses and Incomes and the Balance

Sheet lists out Liabilities and Assets and what does this tell you this tells you that if everything that happened got recorded whatever got recorded eventually must appear either on the face of the Profit loss account or of the face of

the Balance Sheet and between them all these statements reveal our expenses and Incomes and Liabilities in essence this tells you therefore in an organization nothing can happen which is not ultimately going to be categorized into one out of these

four and I think this is all you need to understand if you wish to learn how to make a Balance Sheet let me give you some examples the first sheet that comes out of there says raw materials purchased where will it be shown in all likelihood it will be shown as an expense the next

item says salary paid again expense the next one says invoice we used on a customer seems to be an Income the next piece of paper says Loan taken from a bank this is a liability you use that money to buy a car for yourself this is an asset you filt fuel in the car

this is an expense you use the extra money to buy stocks and Shares in an organization this would be shown as an asset you receive Dividends on those sales this would have here as an Income folks I can go on and on and on and you will find barely

with the words have my mouth that you would have already found a place and one of those four quadrants and believe me it is as simple as that lesson number two folks don’t ever make the mistake of thinking that Profit is equal to money Profit and money have

got nothing to do with each other it’s absolutely possible that you make lots of Profit and have no money it is equally possible that you have lots of bank balance and still you don’t make Profits so that brings me to an interesting question tell me

what is business all about are we in business to generate Profits or are we in business to make money successful organizations stand on two pillars pillar number one ability to generate Profits and pillar number two ability to effectively manage Cash

Flows if you can do one and not do the other you will still get into very very serious problems do you all appreciate at this point of time what a dangerous figure prophetís believe me what table Profit and organization will show it is going to be forced into distributing

it amongst these three interested parties and the three interested parties are employees the government and the shareholders this new logic tells you if expenses means recovery then all the money that you spend and wish to recover should be shown on the expensive side and only the money that you

spend and do not wish to recover should be shown as an asset and the business person says I wish to recover all the money spent it would appear that this argument is headed towards one conclusion that all the money spent should be shown as expenses there should be no Assets

question is not whether you want to recover the question is when would you like to recover folks there are certain money that you will spend today and you will say I wish to recover it today these items are called expenses but there is money spent on other items where you spend today and you say of

course I want to recover but what’s the hurry I don’t mind spending today and recovering it let’s say staggered over a period of two years folks if you mentally agree to recover divided over a period of two years temporarily that state of affairs is called an asset and rate of

depreciation becomes 50 percent