Everything you need to learn about #finance metrics as a #productmanager
Regardless of the domain or team you are at, understanding the PnL and financial nuances of your company is a must for right decision making , be it for users or yourself. Keeping a close eye on the following will allow you to predict the direction the company is going and ask the right questions at the right points:
#cashflow:
1️⃣ Operating Cash Flow: Cash generated or consumed by the company's regular operations.
👉Formula: Net Income + Non-cash Expenses - Changes in Working Capital.
2️⃣ Free Cash Flow: Cash available after all expenses and investments have been accounted for.
👉Formula: Operating Cash Flow - Capital Expenditures.
#revenue:
1️⃣ Gross Revenue: Total revenue generated from sales before deducting any costs or expenses.
👉 Formula: Total units sold x Average selling price per unit.
2️⃣ Net Revenue: Revenue remaining after deducting discounts, returns, and allowances.
👉 Formula: Gross Revenue - Discounts - Returns - Allowances.
#Cost:
1️⃣ Cost of Goods Sold (COGS): Direct costs associated with producing or delivering the product.
👉 Formula: Cost of raw materials + Labor cost + Manufacturing overhead.
2️⃣ Gross Profit: Revenue minus the COGS.
👉 Formula: Net Revenue - COGS.
3️⃣ Operating Expenses: Expenses incurred in running the business, including salaries, marketing costs, and administrative expenses.
👉 Formula: Employee salaries + Marketing expenses + Rent + Utilities.
#profit:
1️⃣ Gross Profit Margin: The percentage of gross profit relative to revenue.
👉 Formula: (Gross Profit / Net Revenue) x 100.
2️⃣ Operating Profit (EBIT): Profit earned from core operations before interest and taxes.
👉 Formula: Gross Profit - Operating Expenses.
3️⃣ Net Profit: Profit remaining after deducting all expenses, including taxes and interest.
👉 Formula: Operating Profit - Taxes - Interest
#financial Metrics:
1️⃣ Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
👉 Formula: (Net Profit from Investment / Cost of Investment) x 100.
2️⃣ Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): Measures a company's operating performance.
👉 Formula: Operating Profit + Depreciation + Amortisation.
#accounting:
1️⃣ Accounts Receivable (AR) Turnover: Measures how quickly the company collects payments from customers.
👉 Formula: Net Revenue / Average Accounts Receivable.
2️⃣ Accounts Payable (AP) Turnover: Measures how quickly the company pays its suppliers.
👉 Formula: COGS / Average Accounts Payable.
#investment:
1️⃣ Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
👉 Formula: (Net Profit from Investment / Cost of Investment) x 100.
2️⃣ Payback Period: Length of time required to recover the initial investment.
👉 Formula: Cost of Investment / Annual Cash Flows.
Finally, a #cheatsheet of above metrics as well as many more:
#innovation #learning
Regardless of the domain or team you are at, understanding the PnL and financial nuances of your company is a must for right decision making , be it for users or yourself. Keeping a close eye on the following will allow you to predict the direction the company is going and ask the right questions at the right points:
#cashflow:
1️⃣ Operating Cash Flow: Cash generated or consumed by the company's regular operations.
👉Formula: Net Income + Non-cash Expenses - Changes in Working Capital.
2️⃣ Free Cash Flow: Cash available after all expenses and investments have been accounted for.
👉Formula: Operating Cash Flow - Capital Expenditures.
#revenue:
1️⃣ Gross Revenue: Total revenue generated from sales before deducting any costs or expenses.
👉 Formula: Total units sold x Average selling price per unit.
2️⃣ Net Revenue: Revenue remaining after deducting discounts, returns, and allowances.
👉 Formula: Gross Revenue - Discounts - Returns - Allowances.
#Cost:
1️⃣ Cost of Goods Sold (COGS): Direct costs associated with producing or delivering the product.
👉 Formula: Cost of raw materials + Labor cost + Manufacturing overhead.
2️⃣ Gross Profit: Revenue minus the COGS.
👉 Formula: Net Revenue - COGS.
3️⃣ Operating Expenses: Expenses incurred in running the business, including salaries, marketing costs, and administrative expenses.
👉 Formula: Employee salaries + Marketing expenses + Rent + Utilities.
#profit:
1️⃣ Gross Profit Margin: The percentage of gross profit relative to revenue.
👉 Formula: (Gross Profit / Net Revenue) x 100.
2️⃣ Operating Profit (EBIT): Profit earned from core operations before interest and taxes.
👉 Formula: Gross Profit - Operating Expenses.
3️⃣ Net Profit: Profit remaining after deducting all expenses, including taxes and interest.
👉 Formula: Operating Profit - Taxes - Interest
#financial Metrics:
1️⃣ Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
👉 Formula: (Net Profit from Investment / Cost of Investment) x 100.
2️⃣ Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA): Measures a company's operating performance.
👉 Formula: Operating Profit + Depreciation + Amortisation.
#accounting:
1️⃣ Accounts Receivable (AR) Turnover: Measures how quickly the company collects payments from customers.
👉 Formula: Net Revenue / Average Accounts Receivable.
2️⃣ Accounts Payable (AP) Turnover: Measures how quickly the company pays its suppliers.
👉 Formula: COGS / Average Accounts Payable.
#investment:
1️⃣ Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
👉 Formula: (Net Profit from Investment / Cost of Investment) x 100.
2️⃣ Payback Period: Length of time required to recover the initial investment.
👉 Formula: Cost of Investment / Annual Cash Flows.
Finally, a #cheatsheet of above metrics as well as many more:
#innovation #learning
