ECON 3A Lecture 12: Income Statements and Profitability
Document Summary
Single-step: total revenue total expenses = net income. Multi-step: highlights components and distinguishes activities in components. Net sales, cogs, gross profit, operating expenses, other revenues and gains, other revenues and losses, net income. Companies may add discontinued operation into lower steps vs. Results of activities not related to operations. For 10q (quarter) and 10k (annually) filings with the sec. Users more concerned about what is going to happen, but incomes statements are all in the past the best we can do, cannot predict future. Strong indicator of what will likely happen. Complete picture, organized way to show what may or may not continue to happen. Gross profit rate = gross profit net sales. Target has higher rate than walmart, but walmart makes more sales as largest brick & mortar retail chain in world. Economies of scale: walmart can afford to lower markup, spread cost over more volume, has benefits from economies of scale.
