income statement
DESCRIPTION
INCOME STATEMENT. LIPANA.OCAMPO.UY. Income Statement. Reports on the performance of the firm and explains some, but not all, of the changes in the assets, liabilities, and equity of the firm between two balance sheet dates REVENUE – inflows from activities or ongoing central operations - PowerPoint PPT PresentationTRANSCRIPT
LIPANA.OCAMPO.UY
Reports on the performance of the firm and explains some, but not all, of the changes in the assets, liabilities, and equity of the firm between two balance sheet dates
◦ REVENUE – inflows from activities or ongoing central operations
◦ EXPENSES – outflows from the entity’s ongoing major or central operations
◦ GAINS and LOSSES – increases (decreases) in equity or net assets from peripheral or incidental transactions
• Shows how much a company earned or lost during the year– For purposes of analysts, investors, and potential
investors
• Matches the REVENUES earned from selling goods and services, or from other activities, against all COSTS AND OUTLAYS incurred in the operation of the company
NET INCOME / NET LOSS
Shows a record of a company’s operating results for the whole year◦ As opposed to a B/S which is a snapshot of the
company’s financial position at a specific point of time (report date)
Used to gauge a company’s potential future performance
Year Ended December 31
2004
Year Ended December 31
2003
Net sales $765,050 $725,000
Cost of sales 535,000 517,000
Gross profit 230,050 208,000
Operating Expenses: Depreciation and amortization Selling, general, and administrative expenses
28,05096,804
25,000109,500
Operating Income 105,196 73,500
Other income (expense): Dividend and interest income Interest expense
5,250(16,250)
10,000(16,750)
Earnings before interest expense and income taxes
94,196 66,750
Interest expenseIncome tax expense
---41,446
---26,500
Income from continuing operations
52,750 40,500
Non-recurring events (5,000) ---
NET INCOME $47,750 $40,500
Year Ended December 31
2004
Year Ended December 31
2003
Net sales $765,050 $725,000
Cost of sales 535,000 517,000
Gross profit 230,050 208,000
Operating Expenses: Depreciation and amortization Selling, general, and administrative expenses
28,05096,804
25,000109,500
Operating Income 105,196 73,500
Other income (expense): Dividend and interest income Interest expense
5,250(16,250)
10,000(16,750)
Earnings before interest expense and income taxes
94,196 66,750
Interest expenseIncome tax expense
---41,446
---26,500
Income from continuing operations
52,750 40,500
Non-recurring events (5,000) ---
NET INCOME $47,750 $40,500
Excess of sales over cost of sales
~ represents the actual direct profit from sales after considering
product costs = company’s health
Year Ended December 31
2004
Year Ended December 31
2003
Net sales $765,050 $725,000
Cost of sales 535,000 517,000
Gross profit 230,050 208,000
Operating Expenses: Depreciation and amortization Selling, general, and administrative expenses
28,05096,804
25,000109,500
Operating Income 105,196 73,500
Other income (expense): Dividend and interest income Interest expense
5,250(16,250)
10,000(16,750)
Earnings before interest expense and income taxes
94,196 66,750
Interest expenseIncome tax expense
---41,446
---26,500
Income from continuing operations
52,750 40,500
Non-recurring events (5,000) ---
NET INCOME $47,750 $40,500
Gross Profit Less Expenses (from company’s day-to-day
operations)
Year Ended December 31
2004
Year Ended December 31
2003
Net sales $765,050 $725,000
Cost of sales 535,000 517,000
Gross profit 230,050 208,000
Operating Expenses: Depreciation and amortization Selling, general, and administrative expenses
28,05096,804
25,000109,500
Operating Income 105,196 73,500
Other income (expense): Dividend and interest income Interest expense
5,250(16,250)
10,000(16,750)
Earnings before interest expense and income taxes
94,196 66,750
Interest expenseIncome tax expense
---41,446
---26,500
Income from continuing operations
52,750 40,500
Non-recurring events (5,000) ---
NET INCOME $47,750 $40,500
Amount by which all revenues exceed all expenses for the
year (not counting extraordinary gains
or losses as defined by GAAP)
Year Ended December 31
2004
Year Ended December 31
2003
Net sales $765,050 $725,000
Cost of sales 535,000 517,000
Gross profit 230,050 208,000
Operating Expenses: Depreciation and amortization Selling, general, and administrative expenses
28,05096,804
25,000109,500
Operating Income 105,196 73,500
Other income (expense): Dividend and interest income Interest expense
5,250(16,250)
10,000(16,750)
Earnings before interest expense and income taxes
94,196 66,750
Interest expenseIncome tax expense
---41,446
---26,500
Income from continuing operations
52,750 40,500
Non-recurring events (5,000) ---
NET INCOME $47,750 $40,500
Sum of all income and costs, including
extraordinary items
OM = ?
OI ÷ NS = OM (%)For each dollar of
sales, X% remained as profit from
operations
-It is a measure of the company’s profitability
-It also reflect changes in volume, product line(s) or types of customers served
Operating Income expressed as a percentage of sales.
OM = 13.8%
Amount Ratio
Net Sales $765,050 100.0%
Operating Costs
? ?
Operating Income
$105,196 13.8%
OC ÷ NS = OCR (%)
For each dollar of sales, X% was
spent for operations
OC ÷ NS = OCR (%)
For each dollar of sales, X% was
spent for operations
Operating Costs expressed as a percentage of sales.
Amount Ratio
Net Sales $765,050 100.0%
Operating Costs
$659,854 86.2%
Operating Income
$105,196 13.8%
NI ÷ NS = NPR (%)
For each dollar of goods sold, X% is earned in profit
NI ÷ NS = NPR (%)
For each dollar of goods sold, X% is earned in profit
Net Income expressed as a percentage of sales.
NPR = ?NPR = 6.24%
Interest Coverage ◦ Compares a company’s long-term debt and
preferred stock to its common equity (capital structure)
◦ The lower the better
Preferred Dividend Coverage◦ The number of times the preferred dividend is
covered (earned) by net income◦ Investors use ‘net profit’ as basis
Earnings Per Common Share (EPCS)
Net Profit for year $47,750
Less: Dividend Requirement for Preferred Stock (350)
Earnings Available for Common Stock $47,400
÷ Outstanding Common Shares ÷15,000,000
EPCS before extraordinary loss $3.16
More complex earnings computations
◦ Basic Earnings Per Common Share Income available to common shareholders for the
period, divided by the weighted-average number of common shares outstanding for the period
◦ Diluted Earnings Per Common Share The amount of current earnings or loss per share
reflecting the maximum dilution, or negative impact, assuming the issuance of all potentially dilutive common shares
Price-Earnings (P/E) Ratio◦ Comparison of the market price of a share of
stock to the earnings per share of that stockYear Ended
December 312004
Year Ended December 31
2003
Stock Price $33 ?
Net income per common share
$3.21 $2.77
P/E Ratio $10.3 $10.3
Year Ended December 31
2004
Year Ended December 31
2003
Stock Price $33 $28.53
Net income per common share
$3.21 $2.77
P/E Ratio $10.3 $10.3
Return on Total Assets◦ Net Income ÷ Total Assets
Return on Capital Operating Profit .(Total Assets – Current Liabilities)
Return on Investment◦ Net Income ÷ Total Assets
Gross Profit Margin◦ Gross Profit ÷ Net Sales
Operating Profit Margin◦ Operating Profit ÷ Net Sales
Net Profit Margin◦ Net Income ÷ Net Sales
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