Income Statement

Question 1

What is Gross Profit?

Answer 1

Revenue - COGS

Question 2

What is Gross Margin?

Answer 2

Gross profit / Revenue

Question 3

What are operating expenses and the 3 typical splits?

Answer 3

Any expenses incurred as a result of performing normal business operations. S,G&A, Advertising and marketing, R&D.

Question 4

What is Other income?

Answer 4

Income not core to the business, therefore not considered to be revenue

Question 5

What is income from non-controlling interests?

Answer 5

When company A invests in company B and company B distributes a portion of portion of its net income to company A.

Question 6

What is EBITDA equation?

Answer 6

Revenue - COGS - Operating expenses + Other income (Sometimes OI not included if not consistent/recurring).

EBIT + D & A

Question 7

What is EBITDA margin?

Answer 7

EBITDA / Revenue

Question 8

Difference between Depreciation and Amortization?

Answer 8

Depreciation is for the aging/depletion of fixed assets whereas Amortization is for intangible assets (e.g IP/goodwill/copyrights).

Question 9

What is EBIT equation?

Answer 9

EBITDA - Debt & A. EBIT = Revenue - COGS - SG&A.

Question 10

What is EBIT margin?

Answer 10

Revenue / EBIT

Question 11

Main types of interest?

Answer 11

Interest Expense (on any debt borrowed) and Interest income (e.g Savings/CD/investments)

Question 12

What is EBT?

Answer 12

EBIT - Net interest

Question 13

EBT margin?

Answer 13

EBT / Revenue

Question 14

What is Net Income?

Answer 14

EBT - Taxes. (Although good practice to have a 2nd NI line item for NI - non-recurring events - distributions)

Question 15

What are the 2 major types of distributions?

Answer 15

Payments in the form of dividends or non-controlling interest payments.

Question 16

Basic share definition

Answer 16

Count of the number of shares outstanding in the market

Question 17

Diluted share definition

Answer 17

Count of no. of shares outstanding in the market + any any shares that would be considered outstanding today if all option/warrant holders exercised (if in the money obviously).

Question 18

Basic EPS + Diluted EPS equation

Answer 18

Net income (before dividends paid usually) / basic share no. 
Net income / diluted share no.

Question 19

Why look at margin Analysis?

Answer 19

Margin analysis facilitates comparison between companies of different sizes (different to common size analysis)

Question 20

What are the 3 key margins used to compare company performance?

Answer 20

Operating Margin / EBITDA margin and Net margin

Question 21

Common size analysis?

Answer 21

Allows for comparison of two companies even though they have different absolute levels of revenue. We can benchmark companies by taking each line item of expenses as a % of total revenue.

Question 22

How would one calculate Normalised EBIT?

Answer 22

You need to add back any one-off charges that don’t look likely to recur -> EBIT + one off/non recurring charges. Beware that the same items are no longer eligible for the tax deductions so that would need to be added back too.

Question 23

What is ROCE formula?

Answer 23

ROCE = Operating income / Capital Employed

Question 24

Capital employed?

Answer 24

Simply all of the financing (debt + equity) that the company has taken on in order to fund its operations.

Question 25

ROA equation?

Answer 25

ROA = Net income / total assets. Could also be / average total assets or long term assets