is.wis.is.030 Comparing and contrasting common line items on income statements

Transcription

1 Income Statements» What Do I See?» Exercises EXERCISES is.wis.is.030 Comparing and contrasting common line items on income statements This exercise compares and contrasts the income statements for Cathay Pacific Airways, Cisco Systems, Coca-Cola, FedEx, The Gap, Intel, Nike, and Starbucks. See the companies income statements on pages Check your answers in the provided solution. (a) Net revenue is the first item on Intel s income statement. What line items on the other companies income statements likely represent a similar concept? (b) Which of the companies disclose more information about net revenues on their income statements than the others? (c) The net in net revenues means gross revenues net of returns, early payment discounts, and price-protection discounts. Nike and FedEx report Revenues rather than Net revenues. What are possible reasons why they did not include the net modifier? Search This exercise helps you learn how to search for information. (d) Cost of sales is the second item on Intel s income statement. Which of the other companies recognize this concept on their income statements (perhaps using a synonym)? (e) Two of the companies recognize cost of sales in net income but do not disclose it separately on their income statements. What do these companies have in common? (f) Which of the companies explicitly disclose gross margins or a synonym for gross margins on their income statements? (g) Two of the companies disclose research and development expenses on their income statements? How do these companies differ from the other companies? (h) Presumably Nike and Coca-Cola have some research and development activities. Which line items on their income statements likely include research and development expenses? (i) Which company s income statement discloses the most precise information about sales and marketing expenses? (j) Which companies income statements disclose the fewest line items associated with operating expenses? (k) In terms of what you know about the companies, which seem to disclose the most detailed information about its operating expenses on its income statement? (l) Which of the companies disclose investment gains or losses on their income statements? (m) Which of the companies separately disclose interest income and interest expense on their income statements? (n) Which of the companies identified above in (m) signs interest income negatively on its income statement? Interest income would seem to be good for owners, why is it signed negatively? (o) Which of the companies identified above in (m) signs interest income and interest expense positively on its income statement? Why do they have the same sign? You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial-Share Alike United States license NavAcc LLC.

2 2 NAVIGATING ACCOUNTING (p) Which line item(s) on Cathay Pacific s statement most like represents interest income and interest expenses? (q) Provision for taxes is disclosed on Intel s income statement. Which of the other companies recognize this concept on their income statements (perhaps using a synonym)? (r) All of Cathay Pacific s operating expenses have negative signs, while all of FedEx s operating expenses have positive signs. In fact, operating expenses have positive signs for all the other companies. What can you conclude about income statement signing conventions? NavAcc LLC, G. Peter & Carolyn R. Wilson

3 EXERCISES 3 Figure 1 Cathay Pacific Airways Limited Statement of Comprehensive Income This figure is an excerpt from Cathay Pacific s 2010 annual report, page 52. Consolidated Statement of Comprehensive Income for the year ended 31st December 2010 Note 2010 HK$M 2009 HK$M 2010 US$M 2009 US$M Turnover Passenger services 59,354 45,920 7,609 5,887 Cargo services 25,901 17,255 3,321 2,212 Catering, recoveries and other services 4,269 3, Total turnover 1 89,524 66,978 11,477 8,587 Expenses Staff (13,850) (12,618) (1,776) (1,618) Inflight service and passenger expenses (3,308) (2,915) (424) (374) Landing, parking and route expenses (11,301) (10,458) (1,449) (1,341) Fuel (28,276) (17,349) (3,625) (2,224) Aircraft maintenance (7,072) (6,567) (907) (842) Aircraft depreciation and operating leases (8,288) (7,978) (1,062) (1,023) Other depreciation, amortisation and operating leases (1,107) (1,103) (142) (141) Commissions (736) (571) (94) (73) Others (4,533) (2,940) (581) (377) Operating expenses (78,471) (62,499) (10,060) (8,013) Operating profit before non-recurring items 11,053 4,479 1, Profit on disposal of investments 3 2,165 1, Gain on deemed disposal of an associate Operating profit 5 14,086 5,733 1, Finance charges (1,655) (1,435) (212) (184) Finance income Net finance charges 6 (978) (847) (125) (109) Share of profits of associates 15 2, Profit before tax 15,695 5,147 2, Taxation 7 (1,462) (283) (187) (36) Profit for the year 14,233 4,864 1, Other comprehensive income Cash flow hedges (488) 329 (62) 42 Revaluation (deficit)/surplus arising from available-for-sale financial assets (15) 479 (2) 62 Share of other comprehensive income of associates (131) 11 (17) 1 Exchange differences on translation of foreign operations Other comprehensive income for the year, net of tax 8 (321) 827 (41) 106 Total comprehensive income for the year 13,912 5,691 1, Profit attributable to Owners of Cathay Pacific 9 14,048 4,694 1, Non-controlling interests ,233 4,864 1, Total comprehensive income attributable to Owners of Cathay Pacific 13,727 5,521 1, Non-controlling interests ,912 5,691 1, Earnings per share (basic and diluted) Source:

4 4 NAVIGATING ACCOUNTING Figure 2 Cisco Systems, Inc. Statement of Operations This figure is an excerpt from Cisco s 2010 annual report, page 40. Consolidated Statements of Operations (in millions, except per-share amounts) Years Ended July 31, 2010 July 25, 2009 July 26, 2008 NET SALES: Product $ 32,420 $ 29,131 $ 33,099 Service 7,620 6,986 6,441 Total net sales 40,040 36,117 39,540 COST OF SALES: Product 11,620 10,481 11,660 Service 2,777 2,542 2,534 Total cost of sales 14,397 13,023 14,194 GROSS MARGIN 25,643 23,094 25,346 OPERATING EXPENSES: Research and development 5,273 5,208 5,325 Sales and marketing 8,716 8,403 8,690 General and administrative 1,999 1,565 1,387 Amortization of purchased intangible assets In-process research and development 63 3 Total operating expenses 16,479 15,772 15,904 OPERATING INCOME 9,164 7,322 9,442 Interest income ,143 Interest expense (623) (346) (319) Other income (loss), net 239 (128) (11) Interest and other income, net INCOME BEFORE PROVISION FOR INCOME TAXES 9,415 7,693 10,255 Provision for income taxes 1,648 1,559 2,203 NET INCOME $ 7,767 $ 6,134 $ 8,052 Net income per share basic $ 1.36 $ 1.05 $ 1.35 Net income per share diluted $ 1.33 $ 1.05 $ 1.31 Shares used in per-share calculation basic 5,732 5,828 5,986 Shares used in per-share calculation diluted 5,848 5,857 6,163 Source:

5 EXERCISES 5 Figure 3 Coca-Cola Company Statements of Income This figure is an excerpt from Coke s 2010 annual Form 10-K report, page 88. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (In millions except per share data) NET OPERATING REVENUES $ 35,119 $ 30,990 $ 31,944 Cost of goods sold 12,693 11,088 11,374 GROSS PROFIT 22,426 19,902 20,570 Selling, general and administrative expenses 13,158 11,358 11,774 Other operating charges OPERATING INCOME 8,449 8,231 8,446 Interest income Interest expense Equity income (loss) net 1, (874) Other income (loss) net 5, INCOME BEFORE INCOME TAXES 14,243 8,946 7,506 Income taxes 2,384 2,040 1,632 CONSOLIDATED NET INCOME 11,859 6,906 5,874 Less: Net income attributable to noncontrolling interests NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY $ 11,809 $ 6,824 $ 5,807 BASIC NET INCOME PER SHARE 1 $ 5.12 $ 2.95 $ 2.51 DILUTED NET INCOME PER SHARE 1 $ 5.06 $ 2.93 $ 2.49 AVERAGE SHARES OUTSTANDING 2,308 2,314 2,315 Effect of dilutive securities AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 2,333 2,329 2,336 Source:

6 6 NAVIGATING ACCOUNTING Figure 4 FedEx Corporation Statements of Income This figure is an excerpt from FedEx s 2010 annual report, page 41. CONSOLIDATED STATEMENTS OF INCOME Years ended May 31, (In millions, except per share amounts) REVENUES $ 34,734 $ 35,497 $ 37,953 OPERATING EXPENSES: Salaries and employee benefits 14,027 13,767 14,202 Purchased transportation 4,728 4,534 4,634 Rentals and landing fees 2,359 2,429 2,441 Depreciation and amortization 1,958 1,975 1,946 Fuel 3,106 3,811 4,409 Maintenance and repairs 1,715 1,898 2,068 Impairment and other charges 18 1, Other 4,825 5,132 5,296 32,736 34,750 35,878 OPERATING INCOME 1, ,075 OTHER INCOME (EXPENSE): Interest expense (79) (85) (98) Interest income Other, net (33) (11) (5) (104) (70) (59) INCOME BEFORE INCOME TAXES 1, ,016 PROVISION FOR INCOME TAXES NET INCOME $ 1,184 $ 98 $ 1,125 BASIC EARNINGS PER COMMON SHARE $ 3.78 $ 0.31 $ 3.64 DILUTED EARNINGS PER COMMON SHARE $ 3.76 $ 0.31 $ 3.60 Source:

7 EXERCISES 7 Figure 5 The Gap Inc. Statements of Income This figure is an excerpt from Gap s 2010 annual Form 10-K report, page 37. THE GAP, INC. CONSOLIDATED STATEMENTS OF INCOME Fiscal Year ($ and shares in millions except per share amounts) Netsales... $14,664 $14,197 $14,526 Costofgoodssoldandoccupancyexpenses... 8,775 8,473 9,079 Grossprofit... 5,889 5,724 5,447 Operating expenses... 3,921 3,909 3,899 Operating income... 1,968 1,815 1,548 Interestexpense(reversal)... (8) 6 1 Interestincome... (6) (7) (37) Incomebeforeincometaxes... 1,982 1,816 1,584 Incometaxes Netincome... $ 1,204 $ 1,102 $ 967 Weighted-average number of shares basic Weighted-average number of shares diluted Earnings per share basic... $ 1.89 $ 1.59 $ 1.35 Earnings per share diluted... $ 1.88 $ 1.58 $ 1.34 Cash dividends declared and paid per share... $ 0.40 $ 0.34 $ 0.34 Source:

8 8 NAVIGATING ACCOUNTING Figure 6 Intel Corporation Statements of Income This figure is an excerpt from Intel s 2010 annual Form 10-K report, page 48. INTEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three Years Ended December 25, 2010 (In Millions, Except Per Share Amounts) Net revenue $ 43,623 $ 35,127 $ 37,586 Cost of sales 15,132 15,566 16,742 Gross margin 28,491 19,561 20,844 Research and development 6,576 5,653 5,722 Marketing, general and administrative 6,309 7,931 5,452 Restructuring and asset impairment charges Amortization of acquisition-related intangibles Operating expenses 12,903 13,850 11,890 Operating income 15,588 5,711 8,954 Gains (losses) on equity method investments, net 117 (147) (1,380) Gains (losses) on other equity investments, net 231 (23) (376) Interest and other, net Income before taxes 16,045 5,704 7,686 Provision for taxes 4,581 1,335 2,394 Net income $ 11,464 $ 4,369 $ 5,292 Basic earnings per common share $ 2.06 $ 0.79 $ 0.93 Diluted earnings per common share $ 2.01 $ 0.77 $ 0.92 Weighted average common shares outstanding: Basic 5,555 5,557 5,663 Diluted 5,696 5,645 5,748 Source:

9 EXERCISES 9 Figure 7 Nike Inc. Statements of Income This figure is an excerpt from Nike s 2010 annual Form 10-K report, page 56. CONSOLIDATED STATEMENTS OF INCOME Revenues Cost of sales Gross margin Selling and administrative expense Restructuring charges (Note 16) Goodwill impairment (Note 4) Intangible and other asset impairment (Note 4) Interest expense (income), net (Notes 6, 7 and 8) Other (income) expense, net (Notes 17 and 18) Income before income taxes Income taxes (Note 9) Net income Basic earnings per common share (Notes 1 and 12) Diluted earnings per common share (Notes 1 and 12) Dividends declared per common share Year Ended May 31, (In millions, except per share data) $19,014.0 $19,176.1 $18, , , , , , , , , , (9.5) (77.1) (49.2) (88.5) 7.9 2, , , $ 1,906.7 $ 1,486.7 $ 1,883.4 $ 3.93 $ 3.07 $ 3.80 $ 3.86 $ 3.03 $ 3.74 $ 1.06 $ 0.98 $ Source:

10 10 NAVIGATING ACCOUNTING Figure 8 Starbucks Corporation Statements of Earnings This figure is an excerpt from Starbuck s 2010 annual Form 10-K report, page 39. Fiscal Year Ended CONSOLIDATED STATEMENTS OF EARNINGS (In millions, except per share data) Oct 3, 2010 Sep 27, 2009 Sep 28, 2008 Net revenues: Company-operatedretail... $ 8,963.5 $8,180.1 $ 8,771.9 Specialty: Licensing... 1, , ,171.6 Foodserviceandother Totalspecialty... 1, , ,611.1 Totalnetrevenues... 10, , ,383.0 Costofsalesincludingoccupancycosts... 4, , ,645.3 Storeoperatingexpenses... 3, , ,745.1 Otheroperatingexpenses Depreciationandamortizationexpenses Generalandadministrativeexpenses Restructuringcharges Totaloperatingexpenses... 9, , ,992.7 Incomefromequityinvestees Operatingincome... 1, Interestincomeandother,net Interestexpense... (32.7) (39.1) (53.4) Earningsbeforeincometaxes... 1, Incometaxes Net earnings including noncontrolling interests Net earnings (loss) attributable to noncontrolling interests (3.8) Net earnings attributable to Starbucks... $ $ $ Earningspershare basic... $ 1.27 $ 0.53 $ 0.43 Earningspershare diluted... $ 1.24 $ 0.52 $ 0.43 Weighted average shares outstanding: Basic Diluted Cashdividendsdeclaredpershare... $ 0.36 $ 0.00 $ 0.00 Source: