2. Income Statements Flashcards
List 6 Valuation Techniques
Multiples (PE, PB, EV/EBITDA, etc)
Discounted Cash Flow
Earnings Power Value
Perfect Foresight Analysis
Sum Of The Parts
Private Market Analysis
what does the income statment tell you
about the profit and losses a business generates over a particular amount of time
the SEC requires income statments
how often?
Quarterly (10Q)
Annual (10K)
the bottom line referes to what?
Net Profit (Revenue - losses)
multi step income statment reaches net profit in how many steps
4
2 other names for Earnings
Net Profit, Net Income
other name for net income
earnings, net profit
what are the 2 ways managment can impact ernings
increasing revenue, decreasing costs
COGS stands for what
Cost Of Goods Sold
What are COGS What do they include
Cost of goods sold:
they only include the costs incured in making a product
for a chocolate bar: the cocoa, sugar, butter, almonds, wrapper (ingredients)
water, electricity used to make the bar (factory)
cooks, quality contro,l taste testers, truck drivers (labour)
what is gross profit
the profit after subracting all direct expenses related providing the product or service
what are operating expenses
day to day expenses needed to operate the business that are not directly related to creating the product
CEO
Advertising
Advertising staff
rent
sales staff
(none of these actually make the product but are a expense in the busness)
what is the formula for operating profit
Operating Profit = Total Sales - COGS - Operating Costs
What are often the 2 biggest Non-Operating Expenses
- Interest Payments
- Taxes
operating profit - non-operating expenses = X
what is X
net profit, or ernings
what are the 2 overaching principals for making a income statment
- Revenue Recognition Principle
- Matching Principle
Do Profits = Cash Flow
explain
Not Necessarily
you can have ernings of 100million.
this does not mean 100 million comes in the door
the cash flow statment tells you what cash is coming in the door and what cash is leaving
over time ernings and cash flow should reconcile
but in the short term they can be quite different
Revenue Recognition Principle
explain it
Only recognize revenue in the period if the ownership of the
goods is passed onto the buyer
not necessarily when the cash changes hands
Matching Principle
explain it (2 parts)
A) Expense what you used up in this period to generate the sales
in this period
B) Recognize any expense that expires in this period and holds no future benifit
Case Study
Magazine Company:
- Customer Pays Upfront For Whole Year
- Monthly Subscription
- Only Passes The Product To The Customer Monthly
Q. Can the Payment Be Considered Revenue
Yes But only for the Quarter (3/12 for Q10)
Chocolate Company
- they cant pay all the cash for their inventory
- they can give an IOU (receivables)
Can we count this as Revenue?
Yes, physical ownership is passed on so this can be counted as Revenue.
Chocolate shop
we buy 12 months of almonds for the year as it is cheaper.
how is the expense expresed on the income statment?
we only expense it on the income statment as its used up for sales
No Sales, NO INVENTORY EXPENSE on the income statement
what is wrong with this income statement?
what rule does it violate?
If Chocolate bars have gone bad during the Quarter (Q10)
what should you do
write off the inventory as an expense for the month
