FIN 3715 Chapter Notes - Chapter 3: Current Liability, Income Statement, Cash Flow Statement

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5 May 2015

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Learning objectives: the income statement, the balance sheet, measuring cash flow. An income statement, or profit and loss statement, indicates the amount of profits generated by a firm over a given time period, such as 1 year and in its basic form can be represented as follows: More specifically: sales (revenue) - cost of goods sold = gross profit. Gross profit operating expenses = operating income (ebit) Operating income interest expenses = earnings before taxes. Earnings before taxes = income taxes = net income. The operating income is the result of the operating activity, while the earnings before taxes keep in consideration, both the operating activity and the financial activity. The final output is the net income which represents income that may be reinvested in the firm (retained earnings) or distributed to its shareholders. To evaluate an income statement we should make a percentage of every item on the sales, which is what is called common-sized income statement.

Related Questions

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

Bells manufacturing estimates that the sales for the 2016 financial year will be $2.25 million. No new borrowing was obtained and, therefore, the interest expense remained unchanged at $24,500. Bells Manufacturing is planning on paying cash dividends of $85,000 during 2016. Refer to the financial data in the table while answering the following

a. Compile the pro forma income statement for the year ended December 31, 2016, using the percentage of sales method.

b. Compile the pro forma income statement for the year ended December 31, 2016, using the fixed and variable cost data

c. As the financial manager, which of the two pro forma statements would you regard as more accurate, explain.

Bell Manufacturing

Income Statement for the Year

Ended December 31, 2015

Sales Revenue $1,800,000

Less Cost of Goods sold $1,100,000

Gross Profits $700,000

Less: Operating Expenses $450,000

Operating Profits $250,000

Less: Interest Expense $24,500

Net Profits before taxes $225,500

Less: Taxes (rate = 40%) $90,200

Net Profit after taxes $135,300

Less: Cash Dividends $85,000

To retained earnings $50,300

--------------------------------------------------------------------------------------------

Bell Manufacturing Breakdown

Of Cost and Expenses into Fixed

And Variable Components for the

Year Ended December 31, 2015

Cost of goods sold

Fixed cost $750,000

Variable cost $350,000

Total Costs $1,100,000

Operating Expenses

Fixed expenses $155,000

Variable expenses $295,000

Total Expense $450,000

What are Aetna Inc financial statements, sale profits, cash flow, debt level, liquidity, return on assets, and return on equity?

Income Statement

All numbers in thousands

Revenue	12/31/2016	12/31/2015	12/31/2014
Total Revenue	63,155,000	60,337,000	58,003,000
Cost of Revenue	46,356,000	43,833,000	42,912,000
Gross Profit	16,799,000	16,504,000	15,091,000
Operating Expenses
Research Development	-	-	-
Selling General and Administrative	12,085,000	11,644,000	10,833,000
Non Recurring	-	-	-
Others	247,000	255,000	243,000
Total Operating Expenses	-	-	-
Operating Income or Loss	4,467,000	4,605,000	4,015,000
Income from Continuing Operations
Total Other Income/Expenses Net	128,000	128,000	-181,000
Earnings Before Interest and Taxes	4,595,000	4,605,000	3,834,000
Interest Expense	604,000	369,000	334,000
Income Before Tax	3,991,000	4,236,000	3,500,000
Income Tax Expense	1,735,000	1,841,000	1,455,000
Minority Interest	62,000	65,000	69,200
Net Income From Continuing Ops	2,256,000	2,395,000	2,045,000
Non-recurring Events
Discontinued Operations	-	-	-
Extraordinary Items	-	-	-
Effect Of Accounting Changes	-	-	-
Other Items	-	-	-
Net Income
Net Income	2,271,000	2,390,000	2,041,000
Preferred Stock And Other Adjustments	-	-	-
Net Income Applicable To Common Shares	2,271,000	2,390,000	2,041,000

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FIN 3715 Chapter Notes - Chapter 3: Current Liability, Income Statement, Cash Flow Statement

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