Table of Contents
- Understanding the 3 Key Financial Statements (from an operator’s perspective)
- How to think about linking financial metrics to operating metrics
- Identifying which key drivers matter as you scale your team and company
Understanding the Three Key Financial Statements
Before diving deeper, let's recap the purpose of the three main financial statements:
1. Income Statement
The income statement reveals your quarterly profit or loss after considering all business expenses. It allows you to:
- Identify strengths: Is your Annual Recurring Revenue (ARR) increasing? Are you attracting more customers or selling higher-tier packages?
- Spot potential issues: Are Selling, General, and Administrative (SG&A) expenses outpacing revenue growth? This could indicate over hiring or excessive product discounting, among other things.
2. Balance Sheet
The balance sheet provides a snapshot of your financial position, showing:
- Assets: Cash, real estate, inventory, etc.
- Liabilities: Debts to lenders, vendors, etc.
This statement helps you:
- Assess your runway, influencing project prioritization and risk tolerance (e.g., Meta's large cash reserves allow for riskier projects)
- Evaluate future liabilities (e.g., high deferred revenue might necessitate a focus on customer retention)
3. Cash Flow Statement