See: Financial Statement. And then note that financing usually means that the company raising dough is doing it in one of two ways. Either they are selling ownership stakes in them, or they are borrowing money in the form of debt, such that they then have an obligatoin to pay back that loan...or else. And that "or else" thing usually means that they lose ownership of the company if they don't.
The financing statement covers the myriad legal and financial risks in making all this magic happen.
Related or Semi-related Video
Cost Accounting: What is the Difference ...21 Views
and finance Allah shmoop What is the difference between income
statements for manufacturing companies service companies and retail companies Three
Totally different stooges Let's call a mo for manufacturing Larry
for Service and Curly were for retail They do completely
different things for a living Manufacturers make stuff Retailers sell
stuff and service companies well don't do anything with stuff
They just sell time and expertise So first manufacturers all
right As we said they make stuff you know ties
underwear cookies artisanal cheeses anything you can think of really
cars for instance Let's take cars well Some of the
world's most famous manufacturing companies are carmakers Ford and GM
and Toyota and BMW in Tesla's most manufacturing companies have
huge embedded cost to produce their products Think about what's
involved in a Tesla factory billion spent on robots to
make cars more money for equipment inside the factory to
pick up and haul cars around all the steel and
plastic and rubber and stuff Also they have to buy
most of the individual parts from someone else like the
cup holders come from a company in Russia The engine
seals come from a prison labor gang in North Korea
wherever the parts come from Tesla has to pony up
the cash for all those individual parts they buyem Manufacturing
companies then often have huge amounts of depreciation that there
running through their income statements in any given year when
the company has to build or upgrade a new factory
Well they'LL cough out massive amounts of cash to do
all this cash flow in that year will be ugly
in a half That's like this guy they'LL depreciate The
cost of that factory heavily is it goes down in
value But then say in four five years later when
that factory your plan is actually working running efficiently breaking
down on Lee every month instead of every hour like
it did in the beginning Well that company might then
show Gap adjusted accounting earnings or net income of ah
say three hundred million dollars But it will have produced
something four hundred fifty million dollars in cash Will The
extra cash they'LL have produced reflects the depreciation of that
expensive factory they built in the first place Well manufacturing
companies also tend to have large numbers of employees big
pension fund obligations that are often awkward to manage They
have unions They have regulatory issues to think about Like
the manufacturer Drilling for oil is one of the most
heavy caf axe or capital expenditure intensive industries on the
planet So you can imagine all the moving parts from
an accountant's perspective on top of risk and massive cost
for insurance When yeah this happens So issued Guess the
income statement Balance sheet cash flow Statements for a complex
manufacturing company are gnarly Yes that is the technical term
So then what about a service company right Like PricewaterhouseCoopers
Something rather accounting firm Well they're kind of the ultimate
service company in our little accounting world Here they sell
time That is the time of their employees their partners
and well their in house auditors Companies hire them because
well they have to hire them PWC is like the
rabbi priest and shaman who blessed the reported earnings of
a given company and they testified that the numbers are
in fact accurate If PWC is ever wrong well PwC
people go to jail or war us so PwC sells
its service of auditing It doesn't manufacture poker tables are
lawn fertilizer or iPhones or coffee mugs with swear words
on them Well they bill out there junior partners at
three hundred dollars an hour while paying them one hundred
dollars an hour and the company then the service company
makes a gross profit of two hundred bucks an hour
on that jr our time But in a service company
there's really no heavy capital expenditure no robots Yet no
large orders of steel needed no risk of an environmentally
destroying oil spill or explosion The risks here are legal
and regulatory compliance ones for which PWC pays hefty insurance
So there's usually very little cap packs for PWC to
depreciate And very a few years where cash flow is
negative if ever like they just get less profitable in
bad times Well the company has pretty steady predictable earnings
And unlike say an oil drilling company it has an
easy time laying off a third of its non union
workforce Should economic times get really bad Or should business
you know take a big turn for the worst service
companies can adjust quickly to changes the downside well tons
of competition A dozen senior accountants could get mad at
PWC because they didn't get the kind of state boys
they wanted Well this disgruntled group could then just quit
on Mass and start their own firm doing the same
accounting thing they were doing for PWC And voila A
competitor is born Well that's not really a danger for
big manufacturers Try quickly raising twenty billion dollars for drilling
platforms in the ocean Riggs pipes shipping contracts and on
on on on yeah no big oil competitors coming along
anytime soon Service companies typically also don't have or need
big balance sheets Unlike big oil or big manufacturing companies
service companies typically much flatter organizationally than manufacturing companies as
well The intellectual distance from the most senior partner CEO
is often not that distant from the most junior partner
We'LL compare that to the intellectual distance from Elon Musk
is brain and out of the line People who grease
those irks under the axles of the Tesla's way Big
gaps there totally different hierarchy or management style needed so
all kinds of challenges then get introduced to manage people
who are well not a smart is Ilan Okay so
that's a service company versus a manufacturing company Well then
where does the retailer come in Well let's think of
Macy's as the typical retailer or Nordstrom's or BestBuy or
needless markup And all of them quiver at the feet
of the world's greatest retailer Amazon So when Macy sells
Ah Grandpa Ty for eighty dollars in their men's department
well how did they make money thinking about the sale
from an accounting perspective Well makes use didn't make that
tie They just bought it Yeah of course from Thailand
they paid thirty dollars for it So when they sell
it for eighty dollars they showed gross profit of fifty
bucks And that fifty bucks of unit gross margin then
has to pay all kinds of operating cost a part
of the salary of the person who sourced that tie
or founded in Thailand It had to pay the line
floor robot who sold the tie to Grandmama It had
to pay rent on the building in which the tie
was sold and had to deal with the crazy high
level of shoplifting product loss returns breakage and so on
What's breakage in a Thai Well the silk ripped The
buyer went to return it to the little shop in
Thailand where they bought it and that shop had turned
into a Starbucks and was nowhere to be found So
Macy's then eats the cost of that tie That thirty
bucks And then there are all kinds of things Macy's
will have to have bought that go out of style
They just don't sell like those x x x x
l pink shirts Yeah not going to sell least not
for their retail price of one hundred twenty nine ninety
five each Macy's paid fifty bucks forum Now they have
to discount them heavily like Look at these things and
they'LL likely lose money when they eventually sell and probably
for less than fifty bucks each One hundred twenty nine
ninety five retail price was supposed to be nicely profitable
had the shirt sold but fifty bucks Macy's paid was
the wholesale price So on Macy's books that wholesale price
of fifty bucks was their gross cost of goods Sold
that fifty dollars to the cellar for that shirt in
Thailand To them at fifty was revenues against what probably
cost them twenty or thirty bucks or last to manufacture
So yeah the shirt maker was a manufacturer selling to
a retailer and maybe there was a sales representative firm
brand of service company right hired to sell those products
into Macy's and Nordstrom's and Needless Markup and well the
others So in this one hundred twenty nine dollars ninety
five cent transaction all three types of business chip in
here The tie manufacturer the sales rep service firm that
places the tie with Macy's and the retailer who eventually
sells it to Grandma for eighty bucks all Stooges working
together at least you know until someone gets seriously injured 00:08:08.68 --> [endTime] Oh
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