Income Statement

Question 1

Non controlling interests

Answer 1

In general terms, when one company (the parent) controls another company (the subsidiary), the parent presents its own financial statement information consolidated with that of the subsidiary.

However, if the parent does not own 100 percent of the subsidiary, it is necessary for the parent
to present an allocation of net income to the minority interests.

Minority interests,
also called non-controlling interests, refer to owners of the remaining shares of the subsidiary that are not owned by the parent. The share of consolidated net income attributable to minority interests is shown at the bottom of the income statement along
with the net income attributable to shareholders of the parent company.

Question 2

what do diluted shares include?

Answer 2

stock options and convertible bonds

Question 3

Some questions to ask when analyzing income statements

Answer 3

• price volume
• investments behind changes in revenue
• if the company is divided in business segments, how is each segment doing?

Question 4

what is net revenue?

Answer 4

the amount charged for the delivery of goods and services, adjusted for cash/volume discounts and other reductions

Question 5

what are some “other operating income/expenses”?

Answer 5

restructuring

asset disposals

impairment of assets

judicial settlement

Question 6

differences between IFRS and US GAAP

Answer 6

the main difference is that IFRS is principles based and US GAAP is rule based

IFRS does not allow the LIFO

IFRS requires annual impairement of intangibles, US GAAP only when there are indications of impairment

IFRS allows for more flexibility in presenting financial statements, US GAAP has stricter rules like the subtotals

*non listed companies, like SMEs, in italy report under OIC (organismo italiano di contabilità) standards. For example they do not need to prepare CF statement, notes and disclosures are less detailed, impairment testing is similar to US GAAP

Question 6

what are expenses?

Answer 6

losses, as well as those expenses that arise in the course of the ordinary activities of the enterprise

Question 6

what are the effects of LIFO and FIFO?

Answer 6

COGS and ending inventory

Question 7

Net profit margin formula and figure per industry

Answer 7

NI/Revenue

From highest to lowest
Tech: 20%
Healthcare: 15% (patent protection and premium pricing)
Financial services: 10-15%
TMT: 10-15%
Industrials: 5-10%
Consumer goods: 5-10%
Automotive: 5%
Hospitality: 4% (high operational costs and low margins)

Question 8

gross profit margin formula and figure per industry

Answer 8

gross profit / revenues

From highest to lowest
Healthcare: 80%
Fin Services: 70%
Tech: 60%
Consumer goods: 50%
Oil and Gas: 40%
Industrials: 30%
Hospitality: 20%
Automotive: 15%

Question 9

What is Other comprehensive income?

Answer 9

The change in equity during a period resulting from transactions not in the IS:

Foreign currency translation

Unrealized gains or losses on derivatives, available for sale securities

Question 10

As reported IS

Answer 10

Net Sales
(COGS)
= gross profit
(SG&A exp)
= operating income
( net interest inc/exp)
( net other non op inc/exp)
= income before income taxes
(income taxes)
= net income

EPS

Question 11

What are COGS

Answer 11

inventory
production labour
warehousing
transportation costs

Question 12

What are SG&A exp?

Answer 12

labour
rent
utilities
advertising
R&D

Question 13

where does depreciation show up?

Answer 13

IS: either as a separate item or embedded in COGS