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Field guides for people who’ve spent a long time saying ‘yep, makes sense’ when it absolutely did not make sense

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If you've been nodding along at "adjusted EBITDA", the first field guide is out.

The Basic Business Accountancy Course for People Who Will Not, Under Any Circumstances, Take an Accountancy Course.

£99. Roughly three hours. Genuinely (relatively) funny.

https://t.co/CjLn3HhIT7

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In 1991, McVitie's had to defend Jaffa Cakes in front of a VAT tribunal.

The question: cake, or biscuit?

It mattered because chocolate biscuits are VAT rated, cakes aren't.

McVitie's brought a giant Jaffa Cake into the courtroom as evidence. They won. Jaffa Cakes are, legally, a cake.

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In 2021, Just Eat paid roughly £5.8 billion in shares for Grubhub, no cash changed hands.

Goodwill is the price paid above what a company's assets are actually worth: a bet on future value.

By 2022 the bet had failed. Just Eat booked a £2.6 billion goodwill impairment on Grubhub alone, plus a further write-down on its earlier Takeaway merger. Nearly £4.3 billion erased in two years.

In November 2024, Just Eat sold Grubhub, its £5.8 billion acquisition, for £514 million cash. Three months later, Prosus bought the rest of Just Eat for £3.4 billion.

The write-downs alone exceed what the company's now being sold for. Just Eat didn't lose money on one bad deal. It spent years proving goodwill is only ever a promise, and promises get revalued.

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ASOS's returns rate used to be the number that kept wrecking its profits, blamed by name in two separate profit warnings.

This year it fell 1.6% and Gross margin went up 3.3%.

Adjusted EBITDA rose about 50%.

However, total sales were still falling the whole time...

ASOS didn't sell more. It just stopped handing so much of it back.

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A balance sheet is named after something that has to be true, not something that happens to be tidy.

Buy a £400,000 house with a £40,000 deposit and a £360,000 mortgage.

The asset is £400,000. The liability is the £360,000 you owe. The £40,000 left over is your equity.

Assets - liabilities equals equity. Every time. Not as a rule someone made up, it's just what the word equity means.

Companies work the same way. If a set of accounts doesn't balance, that's not a quirk. That's a mistake, or someone hoping you won't check.

The sheet balances, or it isn't finished.

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A queue for frozen yoghurt has run every day in Notting Hill since August.

Not for a discount, not for a launch weekend, for yoghurt sold by weight, in a shop with a DJ booth and a disco ball.

People aren't queuing because they're hungry, they're queuing because the brand has built something that makes standing outside for an hour feel like it's worth it.

That's the single most valuable thing Yo-Chi owns, and it doesn't appear anywhere on a balance sheet with its own name. If someone were to buy the company tomorrow, and all of it gets folded into one word: goodwill

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Send an invoice with 'net 30' on it and watch how many clients read that as a suggestion rather than a date....

Meanwhile....

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@haveigotnews what about 'Costus Evaporo'

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@SebJohnsonUK One number explains most of it: admin costs alone ran at close to 8x revenue in the last filed accounts. £2.1m came in. Overheads ate nearly eight times that before anything else got a look in.

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@RobinJPowell @thetimes The real problem isn't where people get stock tips from.
It's that most of them couldn't read a fund's own fact sheet.
Financial literacy would fix that faster than better tips ever could.

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@mattlynnwriter If only you could calculate and place 'hope' on a P&L then these numbers would be flipped.

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Ask 'is this business doing well' and you'll get two different but both true answers - depending on which document you're reading - a balance sheet or a P&L.

A P&L covers a period, usually twelve months. It's a diary: revenue in, costs out, profit left over. Every number on it describes something that happened between two dates.

A balance sheet covers a single moment. It's a photograph: everything the business owns and owes, frozen at the close of business on one specific day. Nothing on it is a flow. Everything on it is a position.

Here's why it matters. A company makes £2 million profit this year, a genuinely strong P&L. Its balance sheet: £15 million of debt from an acquisition three years ago, a £4 million pension deficit, cash reserves shrinking every year despite the profit. That's not a company having a good year. That's a good year sitting on top of a balance sheet that's been quietly deteriorating, and the P&L alone will never show you that.

The reverse happens too. A business can post a genuine loss and still have low debt, strong cash reserves, and decades of retained profit as a buffer. One bad year doesn't sink a company like that. The same year would sink a company with nothing behind it.

Under UK company law, statutory accounts are legally required to include both, because neither one alone tells you if a business is safe. The P&L tells you how the year went. The balance sheet tells you what it could actually survive.

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@trentjhughes Accounts need to be published annually

Good accountant = happy client

The original 'sticky' business model

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@pxue a 50% increase in nipple surface area is a decent return

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@emmafildes Margin went from +6.7% to -2.1% in a year.
Net debt nearly doubled.
They didn't 'aim' to retreat to 12 regions. The balance sheet did that for them

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No. A liability on the balance sheet just means they admit they owe it.
In administration (bankruptcy is the term usually used for individuals rather than businesses), members with unused membership become unsecured creditors, behind the bank and anyone with a secured charge, and usually recover a few pence in the pound, if anything.
This is actually covered in Lesson 4.1 called 'Assets, Liabilities, Equity' in our new course.

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There's a reason a company can have your money in its account and still not be allowed to call it theirs...

In January you pay a gym £600 for a 12 month membership but the gym is NOT allowed to count that as £600 of revenue just yet.

Under the accounting rules (IFRS 15, if you want the name), revenue only gets booked as the service is actually delivered.

So the gym recognises £50 a month, for twelve months, as you use the membership.

The other £550 sits on its books as a liability called deferred revenue: money it's already received, but where their service (in the form of a working treadmill) is still owed. It is called a liability because, well, they are liable to provide you with the service until the end of the year.

Your gym isn't rich in January. It's just holding your money until it's earned it.

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IKEA's meatballs are widely reported to be priced at a loss. We think the idea is if you've never bought a sofa before, you have no idea whether the price in front of you is good. However, everyone knows £3.50 for a hot meal is a good deal, and that feeling of getting a good deal follows you straight into high margin purchase (the sofa). That's a loss leader working exactly as designed.

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@FT Guess you can't say bullish anymore. "Chickenish on McDonald's" just doesn't have the same ring though.