Victor Preston Foundation

                                                                               Image created by ChatGPT In business, cannibalization occurs when a company introduces a new product or service that takes sales away from its existing offerings. Cannibalization can be positive or negative, depending on how profits are affected. Please note, in the nonprofit world, profit is called change in net assets. We use the term profit because it is more familiar to readers. Consider the following fictitious nonprofit example: Get Financial Ready! is a nonprofit that supports retirement planning from an early age. The nonprofit’s main product is providing financial education through an online newsletter. Get Financial Ready! sells 100 subscriptions to their Gold News...

Net income is not the same as a cash inflow. One reason for this is sales on credit. A sale on credit results in an increase in net income without any actual cash inflow to the company. Cash from sales on credit is only received by the company when the debt is paid by the customer. Accrual accounting is used by most companies. Accrual accounting recognizes revenue when a sale is made, not when cash is exchanged. Consider the following simplified income statement for Company A using accrual accounting:                                                         Income Statement for Year End 2024 Revenue: 1,000,000 Cost of Goods Sold: 500,000 Salaries: 200,000 Rent: 100,000 Utilities: 50,000 Advertising: 10,000 Depreciation Expense: 1,000 Total Expenses: 861,000 Net Income = Revenue - Total Expenses. Net Income = $1,000,000 - $861,000 = $139,...

Company performance reports often emphasize revenue. Net income typically appears later in the report. Knowing the difference between revenue and net income is incredibly important. Revenue:  This is the total amount of money that the company recorded during a specific time period. The time period is typically monthly, quarterly, or annually. For example, the fictitious company Red Lunchboxes, has one product, red lunchboxes. They sold 1000 red lunchboxes this quarter at a price of $10 per red lunchbox. Their revenue would be: Total Revenue = Number of red lunchboxes sold x Price per red lunchbox. Total Revenue = 1000 red lunchboxes x $10 per red lunchbox = $10,000. Net Income:  This is the amount of money remaining after subtracting all the costs from revenue. The time period is also typically monthly, quarterly, or annually. To calculate net income, Red Lunchboxes must subtract all their expenses from revenue. Red Lunchboxes quarterly expenses include: A. R...

Market capitalization, or market cap, is the total value of a publicly traded company's outstanding shares of stock. Market capitalization is the company's current share price multiplied by the total number of outstanding shares. For example, Company A has 10 million shares outstanding and its stock is trading at $50 per share: Market Capitalization Company A = Outstanding Shares x Share Price Market Capitalization Company A = 10 million shares x $50 per share = $500 million. This means the stock market believes Company A is “worth” $500 million. “Worth” is in quotations because this is only one way to measure of Company A’s value. If you wanted to purchase the entirety of Company A today, the stock market says it will cost you $500 million. However, according to famed investor Benjamin Graham (1), the stock market is based on opinion in the short-term. In this view, it is only an opinion that Company A is worth $500 million. Stock prices fluctuate. If the share price drops ...