Income Statement Flashcards
Income Statement
Financial Statement that measures a company’s financial performance over a specific accounting period. Summarizes how the business incurs its revenues and expenses through both operating and non-operating activities.
Income Statement Structure
Revenue - COGS ---------------- Gross Margin - Selling, General, and Administrative Expenses ----------------- Operating Income - Interest Expense ----------------- Pretax Income - Income Taxes - Special Items or Extraordinary Expenses ---------------- Net Income
Revenue
The value of a company’s sales or goods and services to its customers. Also called Income, Sales, Turnover, Top line. In the long run, profit margins of a company’s existing products tend to reach a maximum, and future growth relies more heavily on revenue growth.
Cost of Goods Sold (COGS)
Expense incurred for all activities and materials directly related to production of the good or service. This includes raw materials, labor, manufacturing overhead used in production.
While it may be stated separately, Depreciation expense belongs in cost of sales.
AKA Cost of Sales.
Gross Profit
Profitability from production activities. Its simply the difference between Revenue and COGS.
AKA Gross Income, Gross Margin
Selling, General, and Administrative Expenses (SG&A)
Company’s operational expenses. Everything it needs to do to enable the production of goods and RTS.
Financial analysts generally assume management exercises a great deal of control over the expense category.
Trend of SG&A expenses, as a percentage of sales, is watched closely to detect signs of managerial efficiency.
Operating Income
Profitability from business activities. It is deducting SG&A from Gross profit.
It represents a company’s earnings from its normal operations before any non-operating income/costs, such as interest, taxes, and special items.
Operating income is viewed as more reliable for measuring profitability than net income.
Income Taxes
Tax amount has not actually been paid. It’s an estimate created to cover what the company expects to pay.
Special Items or Extraordinary Expenses
A variety of events can affect net income. Such as restructuring changes, unusual or nonrecurring items and discounted operations. These write-offs are supposed to be one-time events.
Investors need to take these special items into account when making inter-annual profit comparisons, because they can distort evaluations.
Net Income
Bottom line.
