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weluckyfew t1_j727obs wrote

It took me a second - I've never seen a "waterfall graph" - but I like it! Starting cash, plus new profit, minus what you spent (not including normal business expenses, so those were already taken out of sale to produce the "inflow" number), equals ending cash.

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Square_Tea4916 OP t1_j72dp6e wrote

Boom! You got it. I’m not an accountant, just an analyst. But cash flow is a really good way to see the health and direction of a business.

FYI - Waterfall is the more “corporate” way of doing a Sankey Diagram if you’ve seen those

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halfanothersdozen t1_j724qhd wrote

I honestly have no idea what this graph is trying to tell me

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KungFuHamster t1_j72avve wrote

  • Someone really really wanted to make a graph that looked like a McDonald's logo "M".
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Lily_Loud_Cat t1_j729e5f wrote

This is my take:

  • Black bar = Funds in their bank account at the start of the calendar year (maybe fiscal?)

  • Yellow bar = Money deposited into their bank account

  • Red bars = Money withdrawn from their bank account

(2021 Black bar + Yellow bar) - (Red bar Investing + Red bar Financing + Red bar Exchange rate) = 2022 Black bar

Repeat the same process for 2022 bars to get 2023 Black bar.

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DoodleVnTaintschtain t1_j75129k wrote

You got it.

Not that you care about the boring accounting stuff, but there are three main financial statements: (i) income statement or profit and loss statement, (ii) balance sheet, and (III) cash flow statement.

The income statement is exactly what it sounds like. It includes your revenues (sales) and expenses, and it shows your profit or loss for the period. This does not, however, always (or even often) represent the cash profit or loss of the business. A business can stack up a lot of cash and show a loss, or they can show a big profit and be bleeding cash. The reason is that generally accepted accounting principles (GAAP) is accrual accounting, so you match the revenue or expense to the period that it's received or incurred in.

Say you sell a three-year subscription to a thing and collect all the cash up front. You'd only count 1/3rd of that revenue in the first year. Cash-wise, you've got all that cash on hand, but accountin-wise, your revenue is 1/3rd of the cash you received. Similarly, on the expense side, your customer would so the same thing. All the cash goes out immediately, but only 1/3rd of the expense would be recognized in the first year.

That beings us to the balance sheet. The revenues / expenses not yet recognized would be captured as either deferred revenue or prepaid expenses. You'd also see your cash balance here.

The cashflow statement (the thing this graph is showing) reconciles the income statement to the balance sheet. Starting from the very bottom of the income statement, net income, it adds back the change in all the relevant balance sheet accounts. An increase in accounts payable (money you owe people like vendors, suppliers, etc.) would be a source of cash (since you recognized the expense, but you haven't actually paid for it yet). Similarly, an increase in accounts receivable (money you're owed) would be a use of cash, since you recognized the revenue, but you haven't received cash for it yet.

Beyond those, you'd also have non-cash items like amortization of intangible assets (like a patent that now has one less year of useful life), depreciation (the reduction in the value of an asset, say a car or a piece of machinery, that is now closer to the end of its useful life), etc. You'd also see investments like buying back stock, buying equipment, machinery, land, etc., buying stock in another company, etc. As well as a handful of other things.

Clear as mud?

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DAAAN-BG t1_j72hxof wrote

This is a pretty well established graph form that shows inflows and outflows of something or favourable and adverse variances. It has similarities with a Sankey, with some advantages and disadvantages.

It will generally have two coloured bars + totals, one coloured as "good" and the other coloured "bad". So this shows lots of cash from operations of which a large quantity was paid out to investors. This isn't the most interesting example of a waterfall graph. You can use them to tell really nuanced stories of financial performance if done well. I've used them to explain an organisations credit risk position and how it has evolved throughout the year.

What a waterfall does a lot better than a Sankey is that it has a concept of inflows vs outflows, which are much better for considering profitability and any form of change to a stock of items. Sankey just has flows from A to B To C. There are certain categories of information that are hard to show in a Sankey like non-cash flows and accounting losses (imagine trying to fit market movements and trading activities into the personal finance Sankey that everyone thinks is interesting). It makes up for it by being able to show much more granular information in an intuitive manner.

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Earthguy69 t1_j740zo9 wrote

It's because it's absolutely awful. It's impressive really

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PrestigiousBarnacle t1_j75nybm wrote

This chart isn’t confusing enough. Let’s add more colors, text in different font and sizes and boxes and italics and bullet points

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Brewe t1_j72w852 wrote

Why does stock buy back not count as investing

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Square_Tea4916 OP t1_j72zszx wrote

Businesses operate a bit different than individuals in this sense. The tldr of it is

Investing Activities are expenditures in long-term assets (think things that are depreciating such as cars and laptops).

Financing are things you do in the form of something equitable in order to fund the business. This is like receiving a loan or paying off debt in order to finance your Operations and Investments. Typically re-purchasing their own equity is them essentially buying up their own financing so they can keep more of their dividends as they feel sustainable with their cash on hand in the foreseeable future.

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Freewheelinthinkin t1_j75r1qj wrote

I like sankey better. More visual cortex, less cerebral cortex. but maybe this has a special value to the target audience and they can “see” these better than I can.

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