Chapter 3 Flashcards
Main formula of the Income statement?
Revenue- expenses = Net Income
Altra formula per il Net Income
Revenue + OI + Gains - Expenses - Losses
Formula Gross Profit
Revenue- Cost of sales
Gross profit: Multi step- single ste
- Multi step: income statement shows gross profit subtotal
- Single step: I.S excludes gross profit subtotal
Formula Operating Profit
Revenue- operating expenses
Cosa è Operating Profit
Profits before deducting taxes and interest expense and before any other non operating items
Ebit is equal to Operating profit?
NO, not necessary
Accrual accounting principle
revenue is recognized in the period in which it is earned
Five-step model for recognise revenue
-Identify the contract with a customer
-Identify the separate or distinct performance obligations in the contract
-Determine the transaction price
-Allocate the transaction price to the performance obligations within the contract
- Revenue recognise when the entity satisfies a performance obligation
Factors to consider in assessing whether a customer has obtained control at a point in time include
- the entity bas a present right to payment
- the customer has legal title
- Customer has physical possession
- Significant risk and rewards of ownership have passed
-Customer has accepted the test
When an entity recognises a revenue?
When it is able t satisfy perorfamnce obligations by transferring control to the customer
What happen for performance obligations satisfied over time?
Revenue is recognises over time by measuring progress towards satysfing the obligation. devi fare la % of completion
Gross vs Net reporting for GAAP
-Report revenues gross if the company is the primary obligor under the contract
- otherwise report revenues net
Expense recognition
A company recognises expenses in the period in which it consumes the economic benefits associated with the expenditure
Matching principle
cost are matched with revenues
COGS
beginning inventory + purchases - ending inventory
Weighted average cost of capital process
- revenue =P*Q
- Avg cost =prendi unit a total cost e lo dividi per il numero di unità vendute
- Cogs= sale * avg cost
- End invetory= (Total unit - Cogs)*AVG Cost
income statement by nature
by type of expenses, like row materials, transport costs, depreciation, staff cost
income statement by function
cost of good sld, administrative so by AREA
Income statement single step
it goes straight forward to the operating income
Income statement multi step
with gross profit
COGS when prices increases
Method:
- FIFO
-LIFO
-AVG.cost
-Lowest
-higher
-middle
End inventory prices are rising
Method:
- FIFO
-LIFO
-AVG.cost
- highest
-lowest
-middle
Straight line method
AVG cost- residual value/useful life
Accelerate depreiciation method
1/n*acc factor
EPS
net earn gins available to common stockholders for the period divided by the weighted average number of common shares outstanding. If firm has a complex structure all report basic and diluted EPS
Basic EPS
Net income- pref.dividends/avg.of shares outstanding
Diluted EPS
Net income/avg.of shares outstanding + new shares issued at conversion
rule when calculating the eps diluted
EPS basic >= EPS diluted
Treasury stock method for stock options diluted eps
net income- preff. dividend/avg.shares outstanding + new shares issued at options price- (shares in plan* exercise price/mkt price)
if the exercise price > mkt price shares are anti dilutive
Convertible bond EPS
net income- preff. dividfens + int.expens*(1-tax rate)/avg.shars outstanding + shares converted
Net profit margin
net income/revenue
the amount of income that a company is able to generate for each dollar of revenue
higher level = higher profitability
Profitability ratios
Gross profit margin and operating profit margin and pretax profit margin
Gross profit margin
gross profit/revenue
operating profit margin
operating profit /revenue
pretax profit
pretax profit/revenuue
