INTRODUCING THE INCOME STATEMENT

Transcription

1 EXECUTIVE EDUCATION INTRODUCING THE INCOME STATEMENT ARJEN MULDER

2 EXPLANATION OF THE TOPIC This video will familiarise you with the concept of an income statement, by showing: 1. What is the purpose of an income statement? 2. What do the elements represent? 3. Why should you, as a non-financial manager, care?

3 PURPOSE OF INCOME STATEMENTS The purpose of an income statement is to reveal the profitability of a firm, usually over the last year. An income statement shows how total revenues ultimately translates into net profits after taxes, by subtracting various costs. Since the period information is not necessarily informative, the income statement usually also shows the data of the previous period (last year). Together, we can not only infer whether a firm has done well over the past year, but also whether it has improved or not.

4 WHY SHOULD A NON-FINANCIAL MANAGER KNOW THIS? Analysts can use income statement information to analyse not only how much profits have been generated, but also the origins of these profits. To derive useful information from an income statement, a minimum working knowledge is required.

5 WHAT IS AN INCOME STATEMENT? It shows how profitable a company was during the period reported. Typically, the income statement starts with gross revenues. Subsequently, all sorts of costs are subtracted. We then end up with Net income available to shareholders.

6 WHAT IS AN INCOME STATEMENT? Consider the following typical income statement: FnF Labs, thousands e Net sales 1,073,508 - COGS 662,968 EBITDA 410,540 - SGA expenditures 51,988 - Depreciation & Amortisation 25,471 Operating profit 333,081 - Special items 338 EBIT 333,419 - Net interest exp. 9,317 EBT 324,102 - Income tax exp. 80,908 EAT 243,194

7 SOME DETAILS OF AN INCOME STATEMENT (1) INCOME STATEMENT EXAMPLE The income statement can be subdivided into: The operating section, which describes the revenues and expenses from the firm s primary activities (the revenues and expenses from delivering or producing goods or rendering services). The non-operating section, which describes the revenues and expenses from the firm s peripheral activities (incl. its financing costs and tax expenses) as well as the results of its incidental activities.

8 SOME DETAILS OF AN INCOME STATEMENT (2) INCOME STATEMENT EXAMPLE FnF Labs, thousands e REVENUE: Services 765,428 Product sales 308,080 Total Revenue 1,073,508 OPERATING EXPENSES: Costs of services 444,963 Costs of product sales 218,005 General and administrative expenses 51,988 Depreciation 24,168 Amortization 1,303 Other income 338 OPERATING INCOME: 333,419 Interest expense 9,317 Income before income tax expense 324,102 Income tax expense 80,908 Net income 243,194 Net income (loss) attributable to non-controlling interest 383 Net income attributable to FnF Labs 242,811

9 SOME DETAILS OF AN INCOME STATEMENT INCOME STATEMENT EXAMPLE: OPERATING REVENUES FnF Labs, thousands e REVENUE: Services 765,428 Product sales 308,080 Total Revenue 1,073,508 OPERATING EXPENSES: Costs of services 444,963 Costs of product sales 218,005 General and administrative expenses 51,988 Depreciation 24,168 Amortization 1,303 Other income 338 OPERATING INCOME: 333,419 Interest expense 9,317 Income before income tax expense 324,102 Income tax expense 80,908 Net income 243,194 Net income (loss) attributable to non-controlling interest 383 Net income attributable to FnF Labs 242,811

10 SOME DETAILS OF AN INCOME STATEMENT INCOME STATEMENT EXAMPLE: OPERATING EXPENSES FnF Labs, thousands e REVENUE: Services 765,428 Product sales 308,080 Total Revenue 1,073,508 OPERATING EXPENSES: Costs of services 444,963 Costs of product sales 218,005 General and administrative expenses 51,988 Depreciation 24,168 Amortization 1,303 Other income 338 OPERATING INCOME: 333,419 Interest expense 9,317 Income before income tax expense 324,102 Income tax expense 80,908 Net income 243,194 Net income (loss) attributable to non-controlling interest 383 Net income attributable to FnF Labs 242,811

11 SOME DETAILS OF AN INCOME STATEMENT INCOME STATEMENT EX.: NON-OPERATING INCOME FnF Labs, thousands e REVENUE: Services 765,428 Product sales 308,080 Total Revenue 1,073,508 OPERATING EXPENSES: Costs of services 444,963 Costs of product sales 218,005 General and administrative expenses 51,988 Depreciation 24,168 Amortization 1,303 Other income 338 OPERATING INCOME: 333,419 Interest expense 9,317 Income before income tax expense 324,102 Income tax expense 80,908 Net income 243,194 Net income (loss) attributable to non-controlling interest 383 Net income attributable to FnF Labs 242,811

12 SOME DETAILS OF AN INCOME STATEMENT INCOME STATEMENT EX.: NON-OPERATING EXPENSES FnF Labs, thousands e REVENUE: Services 765,428 Product sales 308,080 Total Revenue 1,073,508 OPERATING EXPENSES: Costs of services, excl. depreciation 444,963 Costs of product sales, excl. depreciation 218,005 General and administrative expenses, excl. deprecation 51,988 Depreciation 24,168 Amortization 1,303 Other (income) expense, net (338) OPERATING INCOME: 333,419 Interest expense 9,317 Income before income tax expense 324,102 Income tax expense 80,908 Net income 243,194 Net income (loss) attributable to non-controlling interest 383 Net income attributable to FnF Labs 242,811

13 SUMMARY In this video we have had a close look at the income statement. The purpose of this video was to familiarise you with the income statement, as a preparation for my Finance for Non-Financial Managers course.