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The Income Statement

#ecture $

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%oda&'s #ecture

E(cel )asics

*nderstand t!e ele+ents of t!e,nco+e state+ent

*se MS E(cel to +ake a si+-le,nco+e state+ent

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E(cel )asicsAfter launc!in" E(cel &ou s!ould !ave a /indo/ t!at looks like t!is. W!at are its ele+ents

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E(cel )asics 1 t!e various areasMenu Bar Tool Bars

Name Box

Sheet TabStatus Bar

Formula Bar

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E(cel )asics 1 t!e cells

Cells

Currently Active Cell

Eac! cell !as an address sot!at /e can refer to it. E.".t!is is cell E$$.

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E(cel )asics !el- Help Box

,f &ou t&-e 3for+ula'in t!e Hel- )o( andclick return &ou'll "eta s!ort list of to-icst!at are related to t!eter+ 3for+ula'. 4lick

on an& of t!e+ to findout +ore about t!atto-ic.

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E(cel )asics !el- Help Box

After clickin" 3aboutfor+ulas' &ou'll "ett!e /indo/ to t!eleft.

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E(cel )asics 1 enter and edit data

4lick on a cell and start t&-in" .

4ells can contain nu+bers /ords orfor+ulas

,f &ou /ant to edit a cell 6ust clickon it and t&-e so+et!in" ne/

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E(cel )asics 1 enter and edit data

For+ulas start /it!an 373 si"n.

*suall& for+ula cells dis-la& t!e resultof t!e for+ula and not t!e for+ula itself.Ho/ever &ou can see t!e for+ula in t!efor+ula bar.

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E(cel )asics 1 references

%!e address of anot!er cellcan be used in for+ulas

E.". if /e enter t!e nu+ber in cell )2/e can /rite our for+ula in cell )9 as:7)2;2.

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+odeled /it! t!e sa+e tools? can +ean

ver& different t!in"s to different -eo-le.

Mana"e+ent,nvestor )ank Su--lier 4usto+er

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@ifferent =erce-tions

= # )alance S!eet

4usto+er

Mana"e+ent

,nvestor

BAll ri"!t , 6ust /is! ,could do t!is onlineC

BDo need to ada-tever&t!in" is "oin" /ell CB#et's take over so+et!in".C

B%!ese "u&s /ill be out of businessin a &earC

%!e 4o+-an&

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Income

Expenses

%!at /ould "ive us so+e idea but not reall& enou"!. Hence/e'll need a little +ore detail and it is custo+ar& to s-lit,nco+e and E(-enses u- into t!e +ain ite+s.

#et's 6ust t!ink of /!at a co+-an& does

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Sales >a retail or +anufacturin" o-eration?

Service >a doctor or consultin" fir+?,nterest >an invest+ent fir+?4o++issions >a +one& c!an"er or broker?

,nco+e

,n +an& cases es-eciall& in t!e case of s+aller co+-aniest!is is 6ust one or t/o ite+s de-endin" on t!e nature of t!e

business

$ IN

Ele+ents of t!e ,nco+e State+ent

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4ost of SalesWa"es,nterest >on loans?

ent >for office and store s-ace?%a(es

E(-enses

*suall& t!ere are a least a fe/ cate"ories. E(actl&

/!ic! ones a"ain de-ends on t!e nature of t!e business.

$ OUT


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#et's !ave a sneak -revie/

+ Sa es

! "ost o# Sa es

%&oss '&o#(t

! Othe& Expenses

E)IT*

! Inte&est, Taxes an- mo&t(.at(on

Net Income /hence '&o#(t (# + an- oss (# !

So +an& ter+s don't /orr& it's not too bad.

We'll "o over t!e+ one b& one.

A uick -revie/

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Gross =rofit

%!is is t!e first indication of !o/ a co+-an& is doin" >ift!is is ne"ative /atc! out ?.

%!e "ross -rofit is basicall& t!e difference bet/een t!einco+e fro+ t!e +ain line of t!e business +inus t!e actual

cost associated /it! "eneratin" t!at inco+e.

For a s!o- i.e. : Gross =rofit 7 Sales 1 4ost of Goods sold.


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Gross =rofit

)e careful t!ou"! Gross =rofit >as is t!e case /it! uite a

fe/ accountin" ter+s? can be defined in +an& /a&s.,n t!e case of a s+all s!o- t!ere /ill -robabl& be little dis-ute about/!at Gross =rofit is >sales -rice 1 cost -rice?. )ut !o/ about service orlabor intensive industries.

,n "eneral /a"es closel& related to e.". -roduction are included in3cost of sales' but /a"es of t!e u--er +ana"e+ent are not. %!euestion /ill be: /!ere to dra/ t!e line

,t is often u- to t!e individual co+-an& to decide /!at e(actl& is -artof t!e 3cost of sales' and /!at not.


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E),%@AEarnin"s before ,nterest %a(es @e-reciation and

A+ortiIation

%!is is uite a +out!ful but fortunatel& not as difficult tounderstand as one /ould initiall& t!ink.

E),%@A -rovides i+-ortant insi"!t into !o/ /ell t!eco+-an& is doin" fro+ an o-erational -oint of vie/. %!is isalso called 3o-eratin" -rofit'

#et's !ave a closer look at t!e five ter+s.


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E),%@A Earnin"s%!is is -robabl& t!e easiest ter+. %o +an& it is 6ust anot!er /ord for -rofit.

4ontrar& to -rofit !o/ever t!e ter+ earnin"s is also used

/!en certain ite+s are e(cluded >as in E),%@A?.


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E) ,%@A ,nterestMan& co+-anies borro/ +one& in order to finance t!eir

o-eration or t!eir e(-ansion -lans. Daturall& t!e co+-anies/ill need to -a& interest on t!e +one& t!e& borro/.

So+eti+es t!is nu+ber can be ne"ative /!en co+-anies!ave e(cess cas!.


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E), %@A %a(esWe all need to -a& ta(es and so do co+-anies /ell +ost

of t!e ti+e. %!ere are +an& e(ce-tions and rules of course.


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E),% @A 1 @e-reciation continued,f a co+-an& /ould /rite off its e ui-+ent in one "o it/ould incur an unnatural loss in t!e first &ear and anunnatural -rofit in subse uent &ears. Suc! a distortion of t!efinancial -erfor+ance /ould +ake it ver& difficult to 6ud"e/!et!er t!e co+-an& is doin" /ell or not.


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E),%@ A A+ortiIation)asicall& t!is is t!e sa+e as de-reciation but rat!er t!ans-readin" t!e cost of e ui-+ent over a ti+e s-anA+ortiIation is t!e s&ste+atic reduction of a lu+- su+ -aidor t!e /rite off of an intan"ible asset over ti+e.

E(a+-le of #u+- Su+: S-read out t!e costs of !irin" a3su-er 4E ' over t!e ti+e of !is contract.E(a+-le of Write ff: S-read t!e e(-enses related to aco-&ri"!t over t!e econo+ic lifeti+e of t!e co-&ri"!t.


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t!er E(-enses

,n t!e end all e(-enses need to be accounted forso+e/!ere. Hence ever&t!in" t!at is not -art of 34ost ofSales' and 3E),%@A' is lu+-ed to"et!er !ere.

%!is +a& include: Wa"es ent Advertisin" .


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Det ,nco+e

Det inco+e is t!e real -rofit or loss of t!e co+-an&. ,n ot!er/ords t!e +one& t!at t!e co+-an& !as earned >unless it'sloosin" +one& of course? for its o/ners.


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A convenient table t!at lists ,nco+e andE(-enses and su+s t!e+ u-.

+ Sa es

! "ost o# Sa es

%&oss '&o#(t

! Othe& Expenses

E)IT*

! Inte&est, Taxes an- mo&t(.at(on

Net Income /hence '&o#(t (# + an- oss (# !

So /!at is an ,nco+e State+ent

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%!e data is !ere but t!is is neit!er ver&infor+ative nor ver& eas& to understand.

An E(a+-le in E(cel

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A B C D E F G

2

3

4

56 Sales 112007 Cost o Sales !2008 Gross Profit 4000 =D6 - D7

9 "ther #xpenses 120010 EBITDA 2800 =D8 - D9

11 $T%A &0012 Net I !o"e 2000 =D10 - D11

Golden Win @ouble @ra"on ,nternational,nco+e State+ent

%!is looks a lot better but it's still not so

infor+ative.

Use the "ente&an- e& e ) tton"han e the ont

a e the s totao -

Un-e& (ne e#o&ethe s tota

An E(a+-le in E(cel

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2

345

6 Sales 11'((0 100) *%+,%-+7 Cost o Sales !'200 +.) *%!,%-+8 Gross Profit 4#130 (+) *%&,%-+9 "ther #xpenses 1'200 11) *%/,%-+10 EBITDA 2#930 2+) *%10,%-+

11 $T%A &00 !) *%11,%-+12 Net I !o"e 2#130 1/) *%12,%-+13

Golden Win @ouble @ra"on ,nternational,nco+e State+ent

A si+-le inco+e state+ent is indeed eas& to +ake

in E(cel

-- thepe&centa e#o& each &o

An E(a+-le in E(cel

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An E(a+-le in E(cel

W!& t!e J in t!e for+ula for t!e -ercenta"es

Wait a +o+ent W!& do t!e -ercenta"es fail to

add u- After all s!ouldn't B4ost of Sales t!er E(-enses ,%@A Det ,nco+eC be$00L

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Ke& =oints of t!e @a&

%!e ,nco+e state+ent su+s u- all t!e inco+e ande(-enses of a co+-an& in a convenient /a&.

,t is uite strai"!tfor/ard to -ut t!e ,nco+estate+ent into E(cel

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eferences)etter t!an +ost books

Documents

P&L - CPC