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What do we need to do to start our company? We need eliminate stent. That's going to cost us about $300. That's called a fixed asset. Unlike a lemon or sugar or water. This is something that you like a building you buy and you build it wears out over time, but it's a fixed asset. And then you need some inventory.

What do you need to make lemonade? Well, you need sugar. You need water. You need lemons, maybe cups. You need a little container. And perhaps some napkins and you need enough supplies to let's say have 50 gallons of lemonade in our startup or business. Now 50 gallons gets us about 800 cups of lemonade and we're ready to begin.

Let's take a new look at the balance sheet. So now we spent $500. We only have $250 left in the bank, but our fixed assets are now $300. That's our lemonade stand. Our inventory is $200. So for those supplies and things that lemons that we need to make the lemonade Goodwill hasn't changed at a thousand.

So our total. Or $1,750, and we still owed $250 to the person who lent us the money shareholders equity hasn't changed. We haven't made any money. All we've done is we've taken cash and we've turned it into other assets that we're going to need to succeed in our lemonade stand business.

Let's make some assumptions about how the business is going to do. We're going assume we're going to sell 800 cups eliminate a year. We're going to assume that each cup we can sell for a dollar and it's going to cost us about $530 per year to staff our lemonade stand. So now let's take a look at the income statement.

So the income statement talks about the profitability of the revenues that the business generated, what the expenses are, and what's leftover for the owner of the company. So we've got one lemonade stand we're selling 800 cups of lemonade and nurses. Charging a dollar. So we're generating about $800 a year in revenue, and we're spending $200 on inventory.

There's a line item here called cogs that stands for cost of goods sold. We have depreciation because our lemonade stand gets a bit beat up over time and it wears out over five years. So it depreciates over five years. We've got our labor expense to for people to actually pour the lemonade and collect cash from customers.

And we have a profit when we have EBIT and that's earnings before interest in taxes of $10. It's kind of our pre-tax profit for the business. We didn't make very much money because you take that pre-tax profit of $10 and you compare it to our revenues. It's about a 1.3% margin. That's not a particularly high profit.

Now we've got to pay interest on our debts and we have a loss of $15 and then we don't have any taxes, but at the end of the day, we still lose.