Income Statements Flashcards
Definition of Gross Profit
Gross profit is the profit a company makes after deducting from NET REVENUE the costs associated with making and selling its products
Gross Profit formula
= NET REVENUE - COGS
Gross Profit Margin formula
= (NET REVENUE - COGS) / NET REVENUE
Expressed as a %. Good for comparison between companies.
Definition of Revenue
Defined as the amount charged by a company for the goods/services sold in the ordinary activities of the business (core g/s of the company).
It is reported as a net figure. So, it is deducted estimated returns, rebates, discounts, etc..).
Definition of Expenses
Decrease of economic benefits in the form of:
- Outflows
- depletion of assets
- incurrence of liabilities in the ordinary course of the business
That result in decrease of EQUITY!
An outflow of cash to buy an equipment does not decrease EQUITY since the company is merely changing one type of asset for another.
Definition of Operating Profit (Operating Income)
Operating profit is the profit a company makes after deducting from GROSS PROFIT the OPERATING EXPENSES.
OPERATING EXPENSES are not expenses directly related to making g/s but expenses necessary to indirectly allow the making of g/s such as rent, utilities and office supplies.
It tells how much a company is efficient in running its business as a whole without taking into consideration capital structure - it does not tell anything about how a company is financing its ongoing business.
Operating Profit formula
= GROSS PROFIT - OPERATING EXPENSES
Operating Profit Margin formula
= (GROSS PROFIT - OPERATING EXPENSES) / GROSS PROFIT
Translation to Portuguese:
- NET REVENUE
- EXPENSE
- GROSS PROFIT / MARGIN
- OPERATING PROFIT / MARGIN
- EBIT
- NET INCOME / MARGIN
- EARNINGS PER SHARE (EPS)
- RECEITA LIQUIDA
- DESPESAS
- LUCRO BRUTO / MARGEM DE LUCRO BRUTA (MARGEM BRUTA)
- LUCRO OPERACIONAL / MARGEM OPERACIONAL
- LAJIR = LUCRO ANTES DE JUROS E IMPOSTO DE RENDA
- LUCRO LIQUIDO / MARGEM LIQUIDA
- LUCRO POR COMMON SHARES
What is ACCRUAL BASIS?
Accrual basis is a method of recording accounting transactions for revenue when earned and expenses when incurred.
What is the MATCHING PRINCIPLE?
Matching principle is the principal that says that revenues and expenses should be recognized in the same period.
This concept exists only in ACCRUAL ACCOUNTING.
This means that if you owned a store and spent money to purchase items for your inventory, you wouldn’t record that expense until you sold the items for revenue.
Definition of SALVAGE VALUE
Estimated book value of an asset after depreciation is complete.
What is BASIC EARNINS PER SHARE (EPS)?
Earnings per share is the monetary value of earnings per outstanding share of common stock for a company.
BASIC EARNINS PER SHARE (EPS) formula
= Net income available for common shareholders / weighted average # of shares
= (NET INCOME - PREFERRED DIVIDENDS) / weighted average # of shares
Diluted EPS vs BASIC EPS
Diluted EPS is what basic EPS would be if all dilutive securities (convertible securities) were converted
