Chp4: Income Statement Flashcards
Go draw up how the Income Statement looks like
Refer to slides
What is Price-Earnings (P/E) Ratio?
- Ratio of stock price to earnings
- can be -ve value as is based on earnings
- Only a guide
A company with high P/E ratio implies:
1) Investors expecting strong growth hence willing to buy stock
2) As a result, Stock price will be pushed to be higher than earnings relatively.
Net Sales formula
Revenue- Cost
Cost of Goods Sold formula?
Cost of Goods Sold= Opening Stock + Purchases or Production - Closing Stock
Top Line: Gross Margin
Gross Margin= Net Sales- Cost of Good Sold
Operating Expenses?
whatever BASIC expenses
Middle Line: Operating Income
Operating Income= Gross Margin - Depreciation-Operating Expenses
Operating Income= Revenue
Other Income and Expenses
1) Interest Expense
2) Income tax expense
3) Dividend and interest income (+VE)
Bottom Line: Net Income
Net Income= Operating Income+ Dividend - Other Income & Expenses - Extraordinary Items**
Extraordinary items?
1) Events or transactions that are unusual in nature and infrequent to occur
2) Unrelated to ordinary activities
Cost of Items sold: Income Statement Vs Balance Sheet
IS: Only cost of items are included as an expense
BS: Cost of items not sold are shown as part of Inventory
Loan: IS vs BS
IS: Repayment of Principal Loans not expenses, interest paid to lender are expenses
BS: Principal + interests are liabilities
Dividends: IS vs BS
IS: Dividends distributed to shareholders are excluded
BS: Dividend is an item of Shareholder’s Equity
