Income statement – Evedirect http://evedirect.net/ Thu, 28 Oct 2021 05:19:13 +0000 en-US hourly 1 https://wordpress.org/?v=5.8 https://evedirect.net/wp-content/uploads/2021/11/icon-27-120x120.png Income statement – Evedirect http://evedirect.net/ 32 32 What to know about the income statement: an important financial document that shows the income and expenses of a business https://evedirect.net/what-to-know-about-the-income-statement-an-important-financial-document-that-shows-the-income-and-expenses-of-a-business/ Mon, 18 Oct 2021 21:21:49 +0000 https://evedirect.net/what-to-know-about-the-income-statement-an-important-financial-document-that-shows-the-income-and-expenses-of-a-business/ When examining income statements, two main methods are used: vertical analysis and horizontal analysis. Rachel Mendelson / Insider Table of contents: Sticky masthead An income statement is a financial document that details the income and expenses of a business. Some investors and analysts use income statements to make investment decisions. The income statement as well […]]]>
When examining income statements, two main methods are used: vertical analysis and horizontal analysis.

Table of contents: Sticky masthead

  • An income statement is a financial document that details the income and expenses of a business.
  • Some investors and analysts use income statements to make investment decisions.
  • The income statement as well as additional financial documents must be filed with the Securities and Exchange Commission (SEC).
  • Visit Insider’s Investment Reference Library for more stories.

An income statement tells you whether or not a business made a profit or a loss during the reporting period. It is one of the three main financial statements used to assess the health of a business along with the balance sheet and cash flow statement.

The income statement, sometimes simply referred to as the income statement or simply “P&L” begins with the amount of money the business has earned and deducts expenses made during the reporting period ending in net profit or loss. clear. “Income statements are important because they can show how well a business is run and can provide historical data to develop trends to help a business perform better,” says Camari Ellis, EA, former portfolio manager and founder of The Philly Tax Team.

Understand how income statements work

The income statement is important to the different parties. Investors can use income statements, along with other financial statements, to make investment decisions and determine the financial health of a business. “The income statement should be used by anyone trying to understand the business being done as well as the profitability of a company,” says Patrick Badolato, PhD, CPA and senior lecturer in the accounting department at the McCombs School of Business.

An increasing amount of sales year over year can be attractive to a potential investor and can be found in the first line of an income statement. Conversely, if costs go up, this can also be seen on the income statement and may cause an investor to ask more questions about the long-term profitability of the business. Investors and financial analysts also use the income statement to derive popular financial ratios such as earnings per share (EPS).

Earnings per share is a measure that compares a company’s net income against shares outstanding. Another commonly used metric that takes into account the company’s stock price relative to EPS is the price-to-earnings ratio, or P / E ratio. When comparing companies, EPS and P / E ratio can help differentiate two companies in the same category and help an investor make a smarter investment decision, but both use the information provided in the account. results.

“The equation that governs the income statement is: income – expenses + gains – losses = net profit”, says Patrick Badolato, PhD, CPA

Income statements are also important for regulators. All public companies are required to file a Form 10-K each year with the SEC and a Form 10-Q each quarter, which include the income statement and other financial documents and information.

The income statement is broken down into several key elements to help understand how the business manages its income.

  • Revenue: This is the amount of money the business brought in during the reporting period. With revenue, it can be important to note any trends to determine if the business is making more money over time or if sales are slowing down.
  • Expenses: This line details how much the business spent. As with revenue, it can be important to note trends to see if the business is spending more or if it becomes more efficient over time. When we look at spending, “We need to determine whether the spending grows in proportion to income and the drivers of that spending,” says Badolato.
  • Cost of Goods Sold (COGS): amount spent on the production of the goods or services sold. For a company like Apple, that would include the glass to make the phone screen or the chips that go into the iPhone.
  • Gross Profit: This is the amount of money earned minus the cost of goods sold. This will usually be calculated on the income statement by subtracting revenue minus cost of goods sold.
  • Operating and non-operating costs: Operating costs are the cost of bringing the product to market. This could include things like marketing, payroll, and overhead, like insurance and rent. Non-operational expenses may include items that are not directly related to core business functions. This can include items such as contributions to pension plans or dividends to shareholders.
  • Income before taxes: This is the total income before accounting for taxes paid.
  • Depreciation: This is an accounting measure to recognize the cost of the impairment of the tangible assets of the business.
  • Profit before interest, taxes, depreciation and amortization (EBITDA): This is a measure that is sometimes used in place of net income to assess the profitability of a business.
  • Net income: Net income (or loss) is known as the company’s bottom line because of its position in the income statement. Simply put, it is the money the business has made or lost.

Analysis of the income statement

When analyzing income statements, two main methods are used: vertical analysis and horizontal analysis.

Vertical analysis shows each item on a financial statement as a percentage. An example of this would be the CIGS expressed as 35% of total income. This type of analysis can be useful when comparing with other companies in the industry.

Horizontal analysis is used to examine a business’s performance over two or more time periods by stacking each row item directly next to each other from the previous period. Instead of looking at one income statement at a time for different time periods, horizontal analysis compares them side by side in a single view.

How to read an income statement

Below is Ford’s 2021 quarterly income statement of Form 10-Q. One of the first things you’ll notice is that the report uses horizontal analysis. Indeed, the report compares the second quarter of 2020 with the second quarter of 2021 as well as the first half of 2020 and the first half of 2021.

A screenshot showing a Ford 2021 quarterly income statement.

In the first section under Income, you’ll see each of Ford’s major revenue streams, including car sales under Automotive, Ford Credit, and Mobility. In the notes section of the 10-Q, the Mobility line refers to Ford’s autonomous vehicles and related activities, as well as its stake in Argo AI.

Then in the Cost and expenses section, you will notice where Ford is spending its money. The bulk of these expenses fall under cost of sales, which is another name for cost of goods sold. You can also see costs increased from the second quarter of 2020 to the second quarter of 2021, resulting in net income of $ 561 million in the second quarter and $ 3.8 billion in the first half of 2021. in the last column on the right.

Income statement vs balance sheet

Income statements and balance sheets provide important details about how a business uses its cash and other assets, but there are a few key differences between the two. Think of an income statement as a financial timeline, whereas a balance sheet is a snapshot at a point in time. This is because income statements provide details on the amount of money earned and spent during a period. The income statement essentially answers the following questions: How much money has the company made? How was this money spent? Did the company make a profit?

The balance sheet, on the other hand, tells you how much the business has in assets, liabilities and equity. The balance sheet follows a simple formula:

Assets = Liabilities + Equity

As the name suggests, the balance sheet numbers must match because any increase or decrease must be offset. Unlike the income statement, it does not provide information on the amount of money the business has earned or lost, it only provides the amount of debt, cash and other assets that the business owns. at this moment.

Although these financial statements are different, the income statement and the balance sheet as well as the cash flow statement are still related and should be used together to determine a more holistic financial picture of a business.

Income statement Balance sheet
  • Covers transactions over a period of time
  • Tells you whether the business is profitable or not
  • Tells you how much money the business made during the period
  • Provides an overview of total debt and company assets
  • Must be “balanced” where the amount of assets must match the amount of liabilities + equity

The financial report

The income statement is a good entry point to understand and assess the income and costs of a business, but it is important to keep in mind that it is not a document that can tell all the story. “Financial statements are designed to function as a system and not as stand-alone statements,” Badolato adds. “The income statement is just one part of understanding a company’s financial performance. Using a financial statement without the others and other publicly available information – such as footnotes in a financial record – would be similar to betting before looking at your cards. “

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What is an income statement? | Learn more https://evedirect.net/what-is-an-income-statement-learn-more/ Wed, 01 Sep 2021 07:00:00 +0000 https://evedirect.net/what-is-an-income-statement-learn-more/ Along with the balance sheet and cash flow statement, the income statement is one of the “big three” financial reporting documents that every public enterprise must produce quarterly. It is a summary of a company’s performance, determined by the profitability of the organization over a period of time. It is also known as the income […]]]>

Along with the balance sheet and cash flow statement, the income statement is one of the “big three” financial reporting documents that every public enterprise must produce quarterly. It is a summary of a company’s performance, determined by the profitability of the organization over a period of time. It is also known as the income statement (P / L) or income statement.

This document provides investors and stakeholders with a context on how effectively the company manages its revenues and expenses. It is also an excellent assessor of performance over time. Savvy investors can learn a lot about running a business, its operations and how it performs against the industry by surveying the income statement.

Reports in accordance with generally accepted accounting principles (GAAP)

Like other large financial statements, companies must prepare their income statement according to GAAP. This means that the document itself must meet double-entry accounting standards and GAAP standards to qualify and contextualize income, expense, and profit. In addition, income statements should be clear about the period to which they report. For example, many statements include a qualifier that reads: “For the fiscal quarter ended March 30, 2021,” or similar.

According to the Securities and Exchange Commission (SEC), public companies must produce quarterly and annual income statements. Investors will find the income statement packaged in a company’s 10-K or 10-Q folder, alongside the balance sheet and cash flow statement.

Income, expenses and profits

The income statement has three distinct sections: income, expenses and profits. At a glance, it tells investors everything they need to know about the company’s ability to generate profits (or losses). Each section of the statement is delimited by lines which summarize the different treasury activities.

  • Income represent net sales and gross income, as well as miscellaneous income.
  • Expenses show the cost of selling and selling, as well as administrative costs.
  • Profit shows the gross profit, operating profit, profit before tax and net profit of the company.

In these sections, companies declare operating and non-operating costs. Operating income and expenses are those that are directly related to goods or services. Conversely, non-operating income and expenses include those that are not part of day-to-day activities, such as the sale of investments.

While it is likely that there are many line items incorporated into the income and expense sections, the income statement itself follows a very simple equation:

Net Income = (Total Income + Gains) – (Total Expenses + Losses)

Net profit is the bottom line that indicates whether the business is profitable. And while this is an important metric at a glance, investors should delve into the entire income statement to understand exactly what is contributing to that number, positive or negative.

Interpretation of the income statement

When investors look at a company’s income statement, they see top and bottom digits. Top row the figures are those relating to sales and income; net profit the numbers are those related to income. Usually, income is synonymous with turnover and expenses dictate what the results will be.

Ideally, a healthy business will show steady increases in revenue and static or declining numbers in the expense section. More sales and income show the company’s ability to sell more and acquire new customers, thereby promoting revenue growth. Fewer or declining expenses indicate operational efficiency, indicative of savings to the bottom line. Investors are looking for both.

What happens if expenses exceed income? This means that the business is operating at a loss for the period indicated in the income statement. This is not uncommon, especially for growing businesses. If it persists for several quarters, it can be a worrying sign that eventually leads to insolvency.

In short, the more money the business makes and the less it has to spend, the more profitable it is.

How to use an income statement

Since income statements represent an extract over time, they are best used as representation of trends over time. For example, an investor can compare a company’s revenue growth quarter to quarter or year to year. Or, they can look at expenses incurred by a business at a pivotal time in the year to predict future income in an upcoming quarter. The income statement provides a framework for understanding how the business operates over time.

Since income statements follow GAAP standards, they are also useful for comparing competitors. For example, if Company ABC has similar income to Company XYZ, but almost double the expenses, it is worth digging deeper to see why. Is it inefficient management? Higher COGS? Deepening financial reporting can provide context on how a business is performing relative to its peers.

Most income statements provide context, whether it is the previous quarter or the next three years. This provides a quick context for the movement of the company’s income and expenses. Investors don’t have to stalk the data – it’s a matter of comparing two numbers side by side on the statement.

Pay attention to income statement trends

The most valuable part of an income statement is the accounting period it represents. While it’s nice to have insight into the operations of the business, what’s even better is seeing income and expense data increase and decrease over time. If the company’s sales are on the rise and its expenses stay the same or go down, that’s a sign of good health. If revenue growth is flat and the bottom line is heavy, the business needs to re-evaluate its operations.

Remember that it is best to use the income statement along with the balance sheet and cash flow statement as part of a comprehensive review of business finances. Context is important, especially when you are only looking at the numbers for a specific accounting period. And this information is invaluable to investors preparing for retirement. To find out more, subscribe to Rich retirement e-letter below!



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How to create an income statement https://evedirect.net/how-to-create-an-income-statement/ Thu, 12 Aug 2021 07:00:00 +0000 https://evedirect.net/how-to-create-an-income-statement/ Income statements should provide a holistic view of the financial health of a business, including income, expenses, losses and profits. Income statements are necessary for both internal decision-making and external transactions, such as securing funding. Proper preparation of an income statement is essential to ensure that the report reflects an accurate picture of the financial […]]]>
  • Income statements should provide a holistic view of the financial health of a business, including income, expenses, losses and profits.
  • Income statements are necessary for both internal decision-making and external transactions, such as securing funding.
  • Proper preparation of an income statement is essential to ensure that the report reflects an accurate picture of the financial situation of the company.
  • This article is for small business owners and professionals who want to learn how to properly write an income statement for a business.

Preparing an income statement involves making a list of income, expenses, losses and gains. Once these items are consolidated, they are organized into categories and added together to calculate net income over the period covered by the statement.

When compiling an income statement, it is important to make sure that the right items and categories are included. Otherwise, business owners cannot get a clear picture of the financial health of a business, department, or industry for the period in question.

Several elements deserve special attention when preparing an income statement. Different companies handle these items differently, and the way they are handled will have a significant impact on the information taken from an income statement:

  • Interest charges
  • Tax charges
  • Depreciation of property or equipment
  • Depreciation (depreciation) of business buildings

If these elements sound familiar to you, it’s because they are often singled out for reintegration into net sales. The resulting figure is called Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) and is often considered a more accurate representation of a company’s profitability than its bottom line.

What is an income statement?

An income statement is a financial report that shows all the income and expenses of a business, department, team, or operation over a defined period of time. Reports are easily prepared using most accounting software, allowing users to select specific items to include or exclude based on customer, payee, category, or various tags.

In addition to showing income and expenses by category, the income statements also include the net income (income minus expenses) of the organization over a period of time.

Most accounting software also allows users to select the types of income and expenses to include. This allows managers to customize reports to get the most accurate and relevant view of their business finances.

To remember : Income statements are reports used to show all of a business’s income and expenses.

When and why are income statements used?

The income statements are regularly used by company directors for reporting purposes. And, depending on the circumstances of a business or business owner, they can also be used for other purposes, such as valuing a business or reviewing potential tax strategies.

Here are other use cases for income statements:

  • Review of the company’s financial statements
  • Make management decisions, such as hiring
  • Consider investing in new assets

While there are many cases where tax returns can be extremely helpful, there are also cases where people think they are used, but they are not really.

Most notably, when filing taxes, tax returns are not really necessary. They can be used by business owners or executives to get an overview of how much they may owe, but tax returns are prepared using custom forms, rather than categorized tax returns. . These deposits should be verified using third-party documents such as bank statements.

So, when preparing income tax returns, accountants usually look directly at account statements, rather than internal accounting reports such as income statements.

adviceAdvice: When filing taxes, tax returns are generally not used.

How to write an income statement

Income statements can be customized to meet the specific needs of a business, team, department or manager. Having said that, there is a general process of organizing income and expenses that should be followed when preparing an income statement. Otherwise, managers cannot be sure that they are compiling the right records in the right format to provide information about the profitability of an organization.

The four stages of drafting an income statement are:

  1. Identify sources of income, as well as gains (from investments, for example)
  2. Identify the expenses and losses of the business incurred during the same period
  3. Consolidate income, expenses, gains and losses by category, beneficiary or other factor
  4. Add up the income, expenses, gains and losses to determine the net income of the business for the period covered

Preparing an income statement is much easier with accounting software. Most standard accounting software allows users to easily generate income statements by simply selecting the type of accounting report they want to create and then identifying the income and expense categories they want to include or exclude from their report. report.

What is included in an income statement?

An income statement includes all instances of money entering or leaving a business (income and expenditure), as well as cases where the business makes or loses money without the money changing hands (such as the value of the company’s assets rising or falling). Essentially, an income statement includes all of the items which, when added together, equate to the net income of a business over a period of time.

Included in an income statement:

  • Revenue by category
  • Expenses by category
  • Company gains on asset value
  • Losses incurred during the same period

From these, managers can use accounting software to calculate net income for the period covered, which is also shown on the statement. Statements can also include intermittent totals at different times (operating income, pre-tax income, etc.). Statements can also include net income as a percentage of gross income (profit margin).

Example of income statement

As seen in the example above, income statements begin by naming the company, team, or department covered by the statement, as well as the period covered by the statement.

The income statements then list the organization’s income for the period covered, as well as its expenses. Then there is a total operating result for the period. Non-operating income is then added, along with gains and losses and interest charges.

Once these items are added, managers can see the company’s pre-tax income. Then there is a line for the tax expense, before finally arriving at the bottom line. This total represents the money earned or lost during the period covered by the statement.

While many income statements list totals for each of the included items, some items can also be broken down in more detail (income can be broken down by industry, for example) if that provides valuable information to managers.

Income statement template

adviceFree download: Create an income statement in minutes using our free income statement template.

This income statement template can be useful for those looking to create a report manually. But if you are using accounting software for your business, you probably won’t need it. Instead, you should be able to open your accounting software and generate a custom report that includes the items you want to include in your calculations to determine net income for the period under review.


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Income statement for the second quarter of 2021 – Own Snap https://evedirect.net/income-statement-for-the-second-quarter-of-2021-own-snap/ Thu, 12 Aug 2021 07:00:00 +0000 https://evedirect.net/income-statement-for-the-second-quarter-of-2021-own-snap/ In 5 days, the price has not changed at all, except that it has fallen by 0.4%. The cost rose sharply on Friday to hit $ 4.53. On August 9, it climbed even higher of $ 4.59, hitting the 5-day high point. The Tuesday morning value was $ 4.48. On the same day, it temporarily […]]]>

In 5 days, the price has not changed at all, except that it has fallen by 0.4%. The cost rose sharply on Friday to hit $ 4.53. On August 9, it climbed even higher of $ 4.59, hitting the 5-day high point. The Tuesday morning value was $ 4.48. On the same day, it temporarily rose to $ 4.54 and fell below the previous drop of $ 4.46. However, on August 11, it jumped sharply to $ 4.57. A day later, it instantly plunged to $ 4.42. For today, the price is $ 4.44.
Profit for the quarter was BRL 6.3 billion and retained earnings for the six-month period reached 18.2%. The loan portfolio increased by 3% compared to the previous quarter and by approximately 10% compared to the previous year. The Tier rate reached 14.1%, an increase of 0.5 bps quarter-on-quarter from 1.6 bps year-on-year, indicating a very comfortable level of capital. So far this year, they have already allocated BRL 6 billion in equity interest. So their payout was 52%.

It should be noted that the income of the banking structure in the second quarter was 22% higher than in the second quarter of 2019. The total net interest income increased by 1% during the quarter and decreased on an annual basis as the Net interest income from the market was quite high in the second quarter of 2020 thanks to the robust COVID market. ALL spend is at a very good level, showing a 10.7% Q-on-Q drop.


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The income statement must speak to nature https://evedirect.net/the-income-statement-must-speak-to-nature/ Fri, 23 Jul 2021 07:00:00 +0000 https://evedirect.net/the-income-statement-must-speak-to-nature/ A modified version of the value-added income statement that includes a provision for nature would play a key role in protecting biodiversity, says Paolo Quattrone, professor of accounting, governance and society at Alliance Manchester Business School. In his report on biodiversity and the economy, Professor Dasgupta was clear: if we are to account for the […]]]>

A modified version of the value-added income statement that includes a provision for nature would play a key role in protecting biodiversity, says Paolo Quattrone, professor of accounting, governance and society at Alliance Manchester Business School.

In his report on biodiversity and the economy, Professor Dasgupta was clear: if we are to account for the loss of biodiversity, then we have to develop a new language to accommodate it.

This worried Professor Quattrone. But Quattrone’s work takes us beyond language to judgment. “We’re not just talking about words and grammar,” he says, “we’re talking about applying concepts appropriately with judgment and through consistent accounting calculations. “

Although vocabulary is very much in Quattrone’s mind, he is committed to rethinking the format and structure of the income statement in a way that speaks to nature – in collaboration with the ICAEW and the Capitals Coalition . “We are rethinking the income statement, not in terms of profit, but in terms of added value, which we have done in the past,” he says. “And this is also the approach used for national accounts.”

He continues: “The shift to value-added accounting recognizes how value is produced and then distributed among stakeholders. [investors, funders, shareholders, retained earnings for the company, salaries for workers etc], but we should include a line in the income statement: a provision to take into account the nature. “

Bringing society and nature into accounting language

The concept is relatively simple and, if implemented, would lead to a series of important nature-centric results. “The first is that we will immediately make it visible that we are destroying and consuming natural resources in the production of economic value, and we will have to think about how to replenish this natural capital,” he says. “The second is that, in essence, we are going to internalize the externalities. In the current accounting framework, what happens to society and what happens to nature is not in the accounts. In this way, we will bring society and nature into an accounting discourse using accounting language. “

The third outcome of Quattone’s list is the visibility of natural resources consumed by businesses in creating value – and what we decide to do about it. This visibility can encourage companies to take action. “Businesses can say, ‘I have this line in the income statement that relates to a provision for nature and is a fund in my balance sheet to’ give back ‘to nature, but I see my provision is zero and I don’t. accumulate funds to replenish natural capital in the balance sheet. And then I should answer questions from the public as to why this provision is void and my fund is low or zero, ”he said. “In addition, if I create a fund to account for nature, I will have to explain the strategies I have put in place to replenish the natural capital that I consume.

Limit the destruction of nature

While it may be naive to believe that we can produce economic value without destroying natural capital, Quattrone believes that it is only fair to think about how to replenish that capital once we have consumed it. “This is what will ultimately limit the destruction of nature,” he adds.

“Accounting is never about the facts. It is always about judgment and matters of concern. But this proposed approach to the income statement will, at least, generate a space in which the exercise of judgment can take place. The idea is relatively simple, and in that simplicity it is elegant. It is also part of what accountants are already doing. I think Professor Dasgupta is correct that we need to expand the vocabulary of accounting, but I think he means we need to do it so that we can have a conversation about what we are doing to nature and what that we can do for nature, and we must do it in and by the accounts. At the moment, this is not the responsibility of accountants, or at least we do not have a technical solution to fix it. “

Quattrone insists that this approach means that any business that consumes nature – and all of them do – will have to put their hands in their pockets. “Human stakeholders will have to decide how much they are willing to give up in order to replenish this natural capital that they have consumed,” he says.

Gather metrics

It is also time to bundle the indicators associated with the United Nations Sustainable Development Goals and ESG reports with financial reports. This is work he is doing with the Chartered Institute of Management Accountants and Professor Ariela Caglio from Bocconi University in Milan. “These initiatives leave the financial side exactly as it was and they shift the problem elsewhere, so there is no relationship between the economic and the non-economic, the financial and the non-financial,” Quattrone explains. The proposed approach unites the two sets of measures and provides data that informs decisions about what an organization will need to do to bridge the gap between the production and distribution of value, and the imperative to protect nature.

“As with everything else accounting, it will be a matter of judgment and evaluation, but that judgment and evaluation will be tied to key financial metrics and will not be a judgment based on abstract ideas.”

So to what extent can these ideas about redefining the income statement to account for nature be translated into policy making, standardization and regulation?

Quattrone responds that there are three key actions. The first is to rethink transparency, the second is to change the way accounts are kept, and the third is about institutional arrangements – in other words, abandoning shareholder value as the driver of the reporting process. He also points out that accountants and auditors have a different role to play.

“This will require strong political intervention if we are to reform the way we keep corporate accounts and report. And we need to make sure that auditors change their role from certifiers to facilitators of a debate between relevant stakeholders, ”he says.

GDP: the elephant in the room

From a governmental and supra-governmental perspective, the other elephant in the room is GDP and the omission of it, at the moment, measures around nature. “If the GDP included nature as a stakeholder, then all information on the impact of companies on nature could flow transparently, from transnational organizations like the European Union to the small subsidiary owned by a group, in going through an SME, ”he said. . “Unless there is a strong political and political effort to make this real, it won’t happen… but we will still have to tackle this problem. “

He says it’s all about balancing different perspectives. “Accounting is powerful because it brings measurement, but it also brings judgment and proportionality. We have to be proportionate to nature, ”he says.

Lacks the technical aspect

As it stands, we have the Dasgupta report and the UK government’s response to it showing a commitment to protecting biodiversity but, Quattrone says, what’s missing is the technical side. “We have the concept, we have the words, but we don’t have the numbers. The technical aspect has to be in place, and it has to be done in double entry, ”he said. A modified version of the value-added income statement that includes a provision for nature would do this.

“It’s not something you solve in the marketing department. It’s not something you do in the public relations department. This is something that needs to be done in the finance function in cooperation with the other functions because, of course, accounting is the instrument through which you balance different perspectives that allow a business to grow and prosper.

The economics of biodiversity

In 2019, the UK was the first major government to commission a review of the economics of declining biodiversity. We chat with the team behind Dasgupta magazine, to find out what it means for businesses and the profession.



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How are cash purchases recorded in a company’s income statement? https://evedirect.net/how-are-cash-purchases-recorded-in-a-companys-income-statement/ Sat, 03 Jul 2021 07:00:00 +0000 https://evedirect.net/how-are-cash-purchases-recorded-in-a-companys-income-statement/ Cash purchases are recorded more directly in the cash flow statement than in the income statement. In fact, specific cash outflow events do not appear in the income statement at all. On the contrary, different items appearing in the operating section of a company’s income statement are impacted by the balance of cash purchases, credit […]]]>

Cash purchases are recorded more directly in the cash flow statement than in the income statement. In fact, specific cash outflow events do not appear in the income statement at all. On the contrary, different items appearing in the operating section of a company’s income statement are impacted by the balance of cash purchases, credit purchases and other transactions recorded previously. One of the limiting features of the income statement is that it does not show when income is collected or when expenses are paid.

Any investor who wishes to consider cash purchases should instead refer to the cash flow statement. The cash flow statement further distinguishes between cash purchases for financing activities, investing activities and operating activities. For truly itemized postings, cash payments are listed in the general ledger, which credits the cash account and debits the corresponding debts.

Role of the income statement

In financial accounting, the income statement is designed to present summaries of financial activity on a quarterly or annual basis. These summaries are taken from the General Ledger. There may be footnotes in an income statement that describe specific cash purchases, but this is not a reliable source for specific item details.

Operational section of the income statement

With large publicly traded companies, the cash flow is most likely built into the income and expense portion of the operations section. Any cash purchase made in the course of normal operations increases the recorded expenses of the company.

Depending on the company in question, the expenses part can be broken down into more specific sub-categories. Even in these cases, specific cash purchases are not recorded. Rather, the total of all cash purchases and other cash outflows is incorporated into the figures shown in the expense section.

(For more information, see “An introduction to the income statement. “)


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Impact of capital expenditure on the income statement https://evedirect.net/impact-of-capital-expenditure-on-the-income-statement/ Sat, 22 May 2021 07:00:00 +0000 https://evedirect.net/impact-of-capital-expenditure-on-the-income-statement/ What is a capital expenditure (CAPEX)? A capital expenditure (CAPEX) is an investment in a business, such as manufacturing equipment, office supplies, or a vehicle. A CAPEX is generally geared towards the goal of deploying a new line of products or expanding a company’s existing operations. Money spent on CAPEX purchases is not immediately reported […]]]>

What is a capital expenditure (CAPEX)?

A capital expenditure (CAPEX) is an investment in a business, such as manufacturing equipment, office supplies, or a vehicle. A CAPEX is generally geared towards the goal of deploying a new line of products or expanding a company’s existing operations.

Money spent on CAPEX purchases is not immediately reported to an income statement. Rather, it is treated as an asset on the balance sheet, which is deducted over several years as a depreciation expense, starting with the year following the date the item is purchased.

Understanding Capital Expenditures (CAPEX)

CAPEX and income statement

Each year in which this depreciation charge is recognized in the income statement effectively reduces a company’s profit. To cite an example, if a flower shop owner purchases a delivery van for $ 30,000, that vehicle is recorded as an asset on the balance sheet in the same year, but that year’s income statement is not affected by the ‘purchase.

Key points to remember

  • A capital expenditure (CAPEX) is an investment in a business, such as manufacturing equipment, office supplies, or a vehicle.
  • A CAPEX is generally geared towards the goal of introducing a new product line or expanding a company’s existing operations.
  • Money spent on CAPEX purchases is not immediately reported to an income statement.

Suppose further that the store owner plans to use the van for six years, where the vehicle depreciates by $ 5,000 annually. In these circumstances, the income statement for the following year would report an expense of $ 5,000.

As a reminder: a CAPEX does not directly affect the income statements for the year of purchase, but for each following year during the expected useful life of the asset, the depreciation charge affects the income statement.

Free Cash Flow and CAPEX

Although CAPEX is often presented in the cash flow statement, it is very important to understand all the components. For this, an investor can calculate the CAPEX of a period with the following formula:














CAPEX

=


EAR

vs





EAR

p


+

OF















or:















EAR

=

Plant, property and equipment
















EAR

vs


=

PPE for the current period
















EAR

p


=

PPE from the previous period















OF

=

Depreciation expense







begin {aligned} & text {CAPEX} = text {PPE} _c – text {PPE} _p + text {DE} & textbf {where:} & text {PPE} = text {Installations, properties and equipment} & text {PPE} _c = text {PPE for the current period} & text {PPE} _p = text {PPE for the previous period} & text {DE} = text {Depreciation expense} end {aligned}


CAPEX=EARvsEARp+OFor:EAR=Plant, property and equipmentEARvs=PPE for the current periodEARp=PPE from the previous periodOF=Depreciation expense

Essentially, CAPEX reduces free cash flow, which is calculated as operating cash flow minus CAPEX. However, CAPEX is considered an investment, used to buy or improve an existing asset.

CAPEX expenses

There are often purchases linked to a CAPEX, which in fact immediately impact an income statement, depending on the type of asset acquired. Using the example of the flower shop, although the purchase price of the van is not recorded in the income statement for that year, incidental costs such as bills for gasoline, car insurance and ” vehicle maintenance are considered as professional expenses, which would appear on the company’s income statement.

However, it should be noted that these expenses can be offset by the increase in income that could potentially result from increased business activity, due to the increased delivery capacity.

CAPEX versus operating expenses

While CAPEX refers to money spent on tangible assets that will be used for more than twelve months, operational expenses refers to money spent on regular operations of a business.

While CAPEX investments appear on the cash flow table under the investment section, operating expenses appear on the income statement as expenses, with the corresponding amount appearing on the balance sheet, either as a reduction in cash or as an increase in the accounts. suppliers.


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AirAsia X: Loss in Income Statement Mainly Due to Impairment of Assets | Money https://evedirect.net/airasia-x-loss-in-income-statement-mainly-due-to-impairment-of-assets-money/ Thu, 20 May 2021 07:00:00 +0000 https://evedirect.net/airasia-x-loss-in-income-statement-mainly-due-to-impairment-of-assets-money/ An AirAsia logo is pictured at the ticket office at Changi Airport in Singapore, December 29, 2014. – Reuters pic KUALA LUMPUR, May 20 – AirAsia X Bhd (AAX) clarified that the loss in its income statement is mainly attributable to the impairment of assets, which is carried out in accordance with accounting standards issued […]]]>

An AirAsia logo is pictured at the ticket office at Changi Airport in Singapore, December 29, 2014. – Reuters pic

KUALA LUMPUR, May 20 – AirAsia X Bhd (AAX) clarified that the loss in its income statement is mainly attributable to the impairment of assets, which is carried out in accordance with accounting standards issued by the Malaysian Accounting Standards Board.

In a statement released today, the low-cost long-haul carrier said the relevant adjustments were needed in the context of the current operating environment and the ongoing restructuring process.

“According to the applicable standards, the assets are deemed to be impaired but the liabilities associated with these assets are currently contractually payable and therefore remain on the balance sheet.

“This asset impairment has no impact on the restructuring process the company is currently undertaking and appropriate accounting entries will be made on a successful restructuring which will more appropriately reflect the assets and liabilities based on the conditions of final restructuring agreed, “he said.

The airline said AAX and its restructuring advisers, New York-based Seabury Capital, had started active discussions with lessors and other creditors within two months of the court’s convening court ruling ( TLC) with a target result in the coming weeks.

As announced on May 7, 2021, the AAX would hold an Extraordinary General Meeting (EGM) on June 1 for shareholders to vote on the program.

“The CCM will be held in the third quarter for creditors to vote the same on the restructuring plan,” he said.

He said AAX remains committed to resuming business operations as soon as possible after the successful restructuring plan and the opening of international borders.

Meanwhile, in a case filed with Bursa Malaysia, the airline said there would be no comparative financial information available for the corresponding periods of the previous year due to the change in its end of year. fiscal year on June 30, 2021 from December 31, 2020.

He said that for the quarter ended March 31, 2021, the airline recorded a net loss of RM 5.67 billion while revenue stood at RM 38.49 million.

Looking ahead, he said AAX has sought payment deferrals and concessions from its suppliers, donors and lenders and is reducing capital spending where possible to maintain liquidity in these difficult times.

He said pay cuts have been implemented at all levels of the company except for the most junior staff, and the headcount has been cut by 10% with further cuts planned, mostly in functions related to flight operations.

AAX said it has also restructured much of its fuel hedges and is still in the process of restructuring the remaining exposure.

“We have applied for bank loans to improve liquidity and have entered into bilateral negotiations with our aircraft lessors and maintenance partners to significantly reduce the company’s operating cost base. This process is ongoing, ”he said.

He said that under the current circumstances, the airline will continue to seek additional liquidity and work on a significant reduction in the company’s cost base to allow AAX to continue operating in the post-Covid environment. 19 when aggregate demand for international air travel is expected to be significantly below the level of 2019 and prior years. – Bernama


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Understanding the income statement https://evedirect.net/understanding-the-income-statement/ Thu, 08 Apr 2021 07:00:00 +0000 https://evedirect.net/understanding-the-income-statement/ What is the income statement? The income statement is one of the three financial statements that equity investors rely on. (The others are the balance sheet and the cash flow statement.) Understanding an income statement is essential for investors who want to analyze the profitability and future growth of a business. Key points to remember: […]]]>

What is the income statement?

The income statement is one of the three financial statements that equity investors rely on. (The others are the balance sheet and the cash flow statement.) Understanding an income statement is essential for investors who want to analyze the profitability and future growth of a business.

Key points to remember:

  • The income statement summarizes the income and expenses of a business over a period, quarterly or annually.
  • The income statement comes in two forms, in several stages and in a single stage.
  • The multi-step income statement includes four measures of profitability: gross, operating, pre-tax and after-tax.
  • The income statement measures profitability and not cash flow.

In the context of corporate financial reporting, the income statement summarizes the income (sales) and expenses of a business, quarterly and annually, for the year. The final net figure and other figures in the statement are of major interest to investors and analysts.

An introduction to the income statement

Understanding the income statement

The income statements are accompanied by various nicknames. The most commonly used are “income statement”, “income statement”, “income statement” and “statement of operations”.

Many professionals still use the term P&L, which stands for income statement, but this term is rarely printed these days.

The words “profits”, “earnings” and “income” all mean the same thing and are used interchangeably.

Two basic formats for the income statement are used in financial reporting: multi-step and single-step. These are illustrated below in two examples:

Multi-step formatting One-step format
Net sales Net sales
Cost of sales Materials and fabrication
Gross revenue* Marketing and administration
Selling, general and administrative expenses (SG&A) Research and development (R&D) costs
Operating result * Other income and expenses
Other income and expenses Income before taxes
Income before taxes * Taxes
Taxes Net revenue
Net income (after tax) *

In the multi-step income statement, four measures of profitability (displayed with an asterisk *) are revealed at four critical points in a company’s operations: gross, operating, pre-tax, and after-tax.

In the one-step presentation, gross and operating profit figures are not shown. They can be calculated from the data provided. In this method, sales minus materials and production are equal to gross income. By subtracting the expenses of marketing, administration and research and development (R&D) from the gross income, we obtain the operating result.

Investors should keep in mind that the income statement recognizes income when it is earned, that is, when goods are shipped, services rendered and expenses incurred. With accrual accounting, the flow of accounting events through the income statement does not necessarily coincide with the actual receipt and disbursement of cash. The income statement measures profitability, not cash flow.

Income statements (multi-step format)

  • Net sales (sales or revenue): this is the value of a company’s sales of goods and services to its customers. While the bottom line of a business (its net income) gets the most attention from investors, the bottom line is the starting point of the income or income process. In the long run, profit margins on a company’s existing products tend to reach a maximum that is difficult to improve. Thus, businesses generally cannot grow faster than their income.
  • Cost of sales (cost of goods / products sold (COGS) and cost of services): For a manufacturer, cost of sales is the expense incurred for labor, raw materials and manufacturing overheads used in the production of merchandise. Although it can be shown separately, the depreciation expense is part of cost of sales. For wholesalers and retailers, cost of sales is basically the cost of purchasing goods used for resale. For service-related businesses, cost of sales represents the cost of services rendered or the cost of revenue.
  • Gross profit (gross income or gross margin): The gross profit of a business is not just the difference between net sales and cost of sales. Gross profit also provides the resources to cover all other business expenses. Obviously, the higher and more stable a company’s gross margin, the greater the potential for bottom-line results (net profit).
  • Selling, general and administrative expenses: Often referred to as SG&A, these are the operational expenses of the company. Financial analysts assume that management has great control over this category of spending. The evolution of SG&A expenses as a percentage of sales is closely monitored for signs of managerial efficiency, or lack of efficiency.
  • Operating result: Deducting selling and administrative expenses from the gross profit of a business produces operating income. This figure represents a company’s profits from its normal operations before any non-operating income and costs such as interest expense, taxes and special items. Income at the operational level, considered more reliable, is often used by financial analysts rather than net income as a measure of profitability.
  • Interest charges: This item reflects the cost of borrowing for a business. Sometimes companies record a net figure here for interest expense and interest income on invested funds.
  • Income before taxes: Another carefully monitored profitability indicator, profit before income tax expense is an important chip in the income statement. There are many techniques available to businesses to avoid or minimize taxes that affect their reported income. Since these stocks are not part of a company’s business operations, analysts may choose to use pre-tax income as a more accurate measure of the company’s profitability.
  • Income taxes: As stated, the amount of income tax was not actually paid. It is an estimate or account that was created to cover the amount that a business expects to pay in taxes.
  • Special items or extraordinary expenses: A variety of events may result in charges against income. They are generally identified as restructuring charges, unusual or non-recurring items and discontinued operations. These radiations are supposed to be one-off events. Investors should take these special elements into account when making year-to-year profit comparisons, as they can distort valuations.
  • Net revenue (net profit or net profit): this is the net profit, which is the most commonly used indicator of a company’s profitability. Of course, if the expenses exceed the income, this item of account will be interpreted as a net loss. After the payment of any preferred dividends, net income becomes part of a company’s equity as retained earnings. Additional data is also presented for net income based on outstanding (basic) shares and potential conversion of stock options, warrants, etc. (diluted).
  • Overall income: The concept of global result, relatively new, takes into account the effect of items such as foreign currency translation adjustments, minimum pension liability adjustments and unrealized gains / losses on certain investments in debt and equity. The investment community continues to focus on the net income figure. The adjustment items all relate to economic events that are beyond the control of the management of a company. Their impact is real, but they tend to equalize over an extended period.

Example of income statement

Now let’s take a look at an example of XYZ Company’s income statement for the years ended 2019 and 2020 (expenses are in brackets):

Income statement for company XYZ FY 2019 and 2020

(USD figures) 2019 2020
Net sales 1.5 million 2,000,000
Cost of sales (350,000) (375,000)
Gross revenue 1,150,000 1,625,000
Operating costs (SG&A) (235,000) (260,000)
Operating result 915,000 1,365,000
Other income (expenses) 40,000 60,000
Extraordinary gain (loss) (15,000)
Interest charges (50,000) (50,000)
Net profit before taxes (income before taxes) 905,000 1,360,000
Taxes (300,000) (475,000)
Net revenue 605,000 885,000

From the example above, it can be deduced that between the years 2019 and 2020, company XYZ managed to increase its sales by around 33% while reducing its cost of sales from 23% to 19% of sales. Therefore, the gross income in 2020 has increased significantly, which is a huge advantage for the profitability of the company.

In addition, general operating expenses were kept under tight control, increasing by a modest $ 25,000. In 2019, the company’s operating expenses represented 15.7% of revenue, while in 2020 it was only 13%. This is very favorable given the strong increase in sales.

As a result, the company’s bottom line – bottom line – fell from $ 605,000 in 2019 to $ 885,000 in 2020. Positive year-over-year trends in statement items, both of income and expenses, increased the company’s profit margins (net income / net sales) from 40% to 44% – again, this is very favorable.

If you are a DIY investor, you will need to do the math. If you are using investment research data, the experts will calculate the numbers for you.

By understanding the income and expense components of the return, an investor can appreciate what makes a business profitable. In the case of XYZ Company, it experienced a significant increase in sales for the period under review and was also able to control its business expenses. It is an indicator of effective management. The one that deserves further investigation for a possible investment.

Investopedia requires that writers use primary sources to support their work. These include white papers, government data, original reports, and interviews with industry experts. We also reference original research from other reputable publishers where applicable. You can read more about the standards we follow to produce accurate and unbiased content in our
editorial policy.

  1. Randall W. Luecke and David T. Réunion. “How Businesses Report Income: FASB Introduces New Rules for Comprehensive Income.” Journal of Accountancy, May 1998.

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How to analyze Netflix’s income statement https://evedirect.net/how-to-analyze-netflixs-income-statement/ Tue, 23 Mar 2021 07:00:00 +0000 https://evedirect.net/how-to-analyze-netflixs-income-statement/ When it launched in 1997, Netflix Inc (NFLX) created a blueprint for the future of television. Netflix is ​​an Internet media streaming provider comparable to Amazon Prime Instant Video, Hulu, and YouTube, as well as a provider of DVD and Blu-ray discs through the US Postal Service. Netflix’s success is evident through its 130 million […]]]>

When it launched in 1997, Netflix Inc (NFLX) created a blueprint for the future of television. Netflix is ​​an Internet media streaming provider comparable to Amazon Prime Instant Video, Hulu, and YouTube, as well as a provider of DVD and Blu-ray discs through the US Postal Service. Netflix’s success is evident through its 130 million subscriptions and through its continued rise in earnings and soaring stock prices, both of which are reflected in Netflix’s income statement.

Importance of income

The income statement is one of the three most important financial statements produced in assessing the financial position of a company. The income statement determines a summative assumption of a company’s overall profitability by accounting for its achieved turnover and then cross-examining it against its corresponding expenses. Companies typically report both an 8-K and a 10-Q quarterly, with a 10-K being the filing of the annual report. The income statement begins with revenue and ends with a company’s earnings per share (EPS).

The main components

Income statement information usually attracts the most media attention when the company publishes its quarterly and annual results. Income statement reports will most often focus on a company’s revenue, net income, and earnings per share, which are typically projected by analysts in the company’s selling sector.

The income statement can be broken down into three parts: direct, indirect and capital. Turnover is the highest turnover of the enterprise during the reference period. This is the most direct aspect of the income statement and immediately provides an assessment of the company’s performance in the market. Here, we’ll take a look at the first three quarters income statement for Netflix. Their company’s revenue in the third quarter of 2018 was $ 11.61 billion. This amount increased from $ 8.41 billion for a total percentage increase of 38%. Netflix had direct revenue costs (cost of goods sold) of $ 6.898 billion, which left them with a gross margin for the nine months of $ 4.71 billion. This equates to a gross profit margin of 41%, which is slightly above their 12-month average (TTM) of 38%.

Then we turn to their indirect costs, which include marketing, technology and development, as well as general and administrative costs. These are costs that are spread over all of their income. In 2018, the company increased its indirect costs with the largest increase in marketing at 68%. Subtracting indirect costs from gross profit gives us operating profit, also known as profit before interest and taxes (EBIT). Netflix’s EBIT was $ 1.4 billion, an increase of 134% from 2017.

From there we move on to the capital part of the income statement. This section of the income statement can get quite tricky as companies can report both GAAP and non-GAAP profits, which may require some adjustments to arrive at non-GAAP EPS. In the October 2018 report, Netflix does not appear to have any adjustments. From EBIT, Netflix subtracts interest paid on debt for capital expenditures, interest earned on invested capital, and taxes. Below is a breakdown:

Image by Sabrina Jiang © Investopedia 2021


After including interest and taxes, Netflix reported net income of $ 1.077 billion, an increase of 189%. Using diluted shares outstanding of 451,283, this translates into earnings per share of $ 2.39. Growth in net income can often be a better indicator of business performance than EPS since EPS changes with management of the company’s stock, but both are generally used. In 2018, the diluted shares outstanding increased from 446,367 to 451,283.

Current analysis

Using the information from the first three quarters of 2018, we see that revenue increased 38%, net profit increased 189%, and EPS increased 185%. All of this shows that Netflix remains in a phase of strong growth. Looking at some more historical information, we see that revenue growth over the past three years has averaged 29%, net income growth has averaged 28%, and EPS growth has averaged 26%.

Two key measurement metrics that we can look at after analyzing the income statement are P / S and P / E. Netflix has a P / E TTM of 146, which is pretty high considering mid-value companies are typically around 15-20. At 146, investors are willing to pay $ 146 for every dollar of company profit. Netflix has a TTM P / S of 10.14 which is also quite high. At 10.14, investors are prepared to pay $ 10.14 per dollar of income per share that the company earns.

The graph below shows the P / S and P / E of the FAANG group:

Image by Sabrina Jiang © Investopedia 2021


For 2018 and 2019, Netflix looks likely to maintain strong growth. Taking a quick look at analysts’ projections for 2019, we see that revenue growth is projected to be between 25% and 31%. BPA growth is expected to be 50-100%. Based on the projections, it appears that revenue and earnings growth may continue to constitute the higher P / S and P / E valuations in the near term. Analysts believe the stock has a little more room for improvement with a one-year price target of $ 399.


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