How will you come to know if a company is making profit or not?

First things first – How will you come to know if a company is making profit or not? Or before that – Why should we know if your business is making profit or not? Well friends one of the prime objectives of starting any business is to make profit. If you are not sure or if you don’t know whether you are making profit or not, I think you have defeated the purpose of starting that business. If your intention is not to make profit are you running a charity?

Profit

Anyway coming back to the topic, How will we come to know if the company is making profit or not? If company says we have got high-profile clients, does it necessarily mean that the company is making profit? If a company says we have got an outstanding brand, does it necessarily mean that the company is making profit? What if you find out that the company has got motivated employees? The walk in together, they walk out together. They take lunch breaks together. They eat together. They even kill themselves together. Well what I mean is they go out for smoke breaks together. Does it necessarily mean that the company is making profit? What if the company directors are millionaires? Does it tell, whether company is making profit or not? How about the company that operates in prime location? Does it necessarily mean that the company is making profit?

Friends, none of these can be used as a yard stick to know if a company is making profit or not. Only way or the most effective way to know that a company is making profit or not is by simply preparing basic financial statements and reading and understanding it.

Basic Financial Statements

There are three basic financial statements that will tell us whether a company is making profit or not. They are:

  1. Balance Sheet
  2. Profit & Loss Statement
  3. Cash-Flow Statement
  • These three statements will tell us whether a company is making money or not.
  • It will also tell us where and how a business is making money.
  • It is a legal requirement to prepare Profit & Loss Statement and Balance Sheet at least once every year.
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Understanding Amortization Schedule

 

An Excel Amortization Schedule

The statement of repayment is the most important part, when you are going to take a loan. It tells you the amounts you are required to pay the bank on monthly basis. The repayment schedule is popularly known as Amortization schedule. It is numbers and calculations which confuses most of the people. But once you understand the Amortization schedule you can take charge of paying and nobody can fool around with you. Not even the bank people. MS-Excel can be used to make a schedule.

Today we are just going to start with understanding a few terms that are used in the schedule. They are technical but very easy to understand They are:

  • Principal: The total amount that you have borrowed from the bank. For example if you have applied for $ 30000 loan and the granted loan amount is $ 25000 then your principal is the $25000 you receive from the bank. It is not the application amount of $30000 but the loan amount actually received $25000.
  • Interest rate: A percentage of the Principal will be charged by the bank. This is the fees for using the bank’s money. It will be the part of your installment every month.
  • Term – The period for which the loan is granted is called the term. For example if you are getting you $25000 loan for 48 months then 48 months is the term of the loan.
  • Amortization –The table showing the monthly installments is called the Amortization schedule. It will have all the terms discussed above.

After understanding the terms you will be better equipped to handle the repayment of the loan. For more information you can visit ferratum UK.They have an amazing collection of blogs which will make you understand about various kinds of loans. Also there are amazing online calculators which you can use.