FIN 343 Lecture Notes - Lecture 2: Net Profit, Balance Sheet, Income Statement

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viridianjellyfish544

15 Feb 2019

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Income statement is also called the earnings statement, the profit and loss statement. Summary of the company"s revenues and expenses over a period of time. Flow measure each value represents the cumulative amount of an item for the accounting period. Operating profit (ebit - earnings before interest and taxes) (interest expense) Profit before taxes (ebt - earnings before taxes) (taxes) Cogs are the direct costs of manufacturing/ selling a product. Retailer: cost of materials purchased for resale. Cogs = beginning inventory + purchases - ending inventory. Depends on level of debt and interest rates. Depends on earned income and federal, state, and local levels. Taxes owed are calculated at the end of the year based on the firm"s actual profit before taxes. The bottom line of the income statement. Net profit is not the same as cash flow. Earnings per share (eps) = net income/ number of shares outstanding. Balance sheet is also called the statement of financial position.

Related Questions

CREEK ENTERPRISES, INC.

Income Statement Year Ending December 21, 2015

SALES REVENUE $ 30,000,000

LESS: COGS 21,000,000

GROSS PROFIT $ 9,000,000

LESS: OPERATING EXPENSES

SELLING EXPENSE $ 3,000,000

GENERAL & ADMIN. EXPENSE 1,800

LEASE EXPENSE 200,000

DEPRECIATION EXPENSE 1,000,000

TOTAL OPERATING EXPENSE $ 6,000,000

OPERATING PROFITS $ 3,000,000

LESS:INTEREST EXPENSE: 1,000,000

NET PROFIT BEFORE TAXES $ 2,000,000

LESS:TAXES(RATE = 40%) 800,000

NET PROFIT AFTER TAXES $ 1,200,000

LESS: PREFERRED STOCKHLDR

DIVIDEND 100,000,00

EARNINGS AVAILABLE FOR

COMMON STOCKHOLDERS $1,100,000

Common-size statement analysis A common-size income statement for Creek Enterprisesâ
2014 operations follows. Using the firmâs 2015 income statement, develop the 2015 common-size income statement and compare it with the 2014 statement. Which areas require further analysis and investigation?

CREEK, INC. COMMON-SIZE INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014

SALES REVENUE ($35,000,000) 100%

LESS: COGS 65.9

GROSS PROFITS 34.1%

LESS: OPERATING EXPENSES

SELLING EXPENSE 12.7%

GENERAL & ADMIN EXPENSE 6.3

LEASE EXPENSE 0.6

DEPRECIATION EXPENSE 3.6

TOTAL OPERATING EXPENSE 23.2

OPERATION PROFITS 109%

INTEREST EXPENSE 1.5

NET PROFIT BEFORE TAXES 9.4%

LESS:TAXES(RATE = 40%) 3.8

NET PROFIT AFTER TAXES 5.6%

LESS; PREFERRED STOCKHLDR DIVIDENDS 0.1

EARNINGS AVAIL. FOR COMMON STOCKHLDRS 5.5%

copperwombat680

On the following page are the Consolidated Statements of Income and Parent Company Profit and Loss Statement of Vantaa Corporation (Finland) from the companyâs 2009 annual report.

Vantaa Corporation Consolidated Statements of Income June 30, 2009
	2009 FIM million
Net sales	12,795
Cost of goods sold	(9,178)
Gross profit	3,617
Selling, marketing, and administrative expenses	(1,328)
Other income and expenses, net	204
Operating profit	2,493
Share in results of associated companies	2
Interest and other financial expenses, net	(78)
Profit before extraordinary items and income taxes	2,417
Extraordinary items	-
Profit before income taxes	2,417
Income taxes	(962)
Profit before minority interest	1,455
Minority interests	-
Net profit	1,455
Earnings per share, FIM	15.47

Vantaa Corporation Parent Company Profit and Loss Statement June 30, 2009
	2009 FIM million
Net sales	20
Cost of goods sold	(29)
Gross margin	(9)
Administrative expenses	(50)
Other income and expenses, net	125
Operating profit	66
Interest and other financial expenses, net	(173)
Loss before contribution, untaxed reserves and income taxes	(107)
Group contributions	470
Decrease in untaxed reserves	-
Increase in accelerated depreciation	(1)
Profit before income taxes	362
Income taxes	(108)
Net profit	254

Compare the net income and other important items in the two financial statements. Does this influence your opinion about the operating performance of the company? In your opinion, which statement is more informative from 1) a user perspective, 2) a management perspective?

olivealligator582

P3â20 Common-size statement analysis A common-size income statement for Creek Enterprisesâ
2014 operations follows. Using the firmâs 2015 income statement presented in
Problem 3â18, develop the 2015 common-size income statement and compare it with
the 2014 statement. Which areas require further analysis and investigation?

Creek Enterprises Common-Size Income Statement
for the Year Ended December 31, 2014

Sales revenue ($35,000,000) 100.0%
Less: Cost of goods sold 65.9
Gross profits 34.1%
Less: Operating expenses
Selling expense 12.7%
General and administrative expenses 6.3
Lease expense 0.6
Depreciation expense 3.6
Total operating expense 23.2
Operating profits 10.9%
Less: Interest expense 1.5
Net profits before taxes 9.4%
Less: Taxes (rate 5 40%) 3.8
Net profits after taxes 5.6%
Less: Preferred stock dividends 0.1
Earnings available for common stockholders 5.5%


Creek Enterprises
Common-Size Income Statement
For the Years Ended December 31, 2014 and 2015

	2015	2014
Sales revenue ($30,000,000)
Less: Cost of goods sold
Gross profits
Less: Operating expenses
Selling expense
General and administrative expenses
Lease expense
Depreciation expense
Total operating expense
Operating profits
Less: Interest expense
Net profits before taxes
Less: Taxes (rate = 40%)
Net profits after taxes

FIN 343 Lecture Notes - Lecture 2: Net Profit, Balance Sheet, Income Statement

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