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Income Statement: The Entrepreneurs Scorecard

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Title: Income Statement: The Entrepreneurs Scorecard


1
Income Statement The Entrepreneurs Scorecard
  • Chapter 13

2
Chapter 13 Objectives
  • Understand the elements of an income statement
  • Calculate the net profit or loss
  • Prepare a monthly income statement

3
The Income Statement
  • Used to track businesss sales and costs
  • If sales are greater than costs, the income
    statement shows a net profit
  • If sales are less than costs, it will show a
    negative number, which means a net loss

4
The Income Statement
  • Income statement tells a business if it is
    meeting customer needs, creating value, and
    keeping good records
  • Created once a month, once a quarter (every three
    months), and once a year

5
Eight Parts of the Income Statement
  • Revenue all money received from a companys
    product/service sales
  • COGS Costs of materials used to make the
    product or deliver the service
  • Other variable costs costs that vary with
    sales, such as commission shipping
  • Gross Profit Revenue (COGS other variable
    costs) Gross profit

6
Eight Parts of the Income Statement
  • Fixed Costs USAIIRD are the most common fixed
    costs
  • Pre-Tax Profit Gross profit fixed costs. No
    taxes taken out at this point
  • Taxes Taxes on earned income
  • Net Profit/(Loss) Also called the bottom line,
    the profit/loss after taxes have been paid

7
Using Sales Data
  • Quickly shows how much money is coming in or
    going out
  • Shows you how much money you have to spend on
    supplies and employees
  • Allows you to create financial ratios that help
    make more sense of the data

8
Important Financial Ratios
  • Return on Investment (ROI) net profit /
    investment
  • Same Size Analysis express dollar amounts as a
    percentage. Makes data easier to use when in
    percent format.
  • Example divide sales into each line item from
    the income statement and multiply by 100.
  • If sales were 10, then 10 / 10 x 100 100 or
    if COGS were 4, then 4 / 10 x 100 40

9
Important Financial Ratios
  • Operating Ratio sales / individual fixed cost
  • Tells you what percentage of each dollar of
    revenue is being used to pay the cost
  • Example rent is 2,000 per month and monthly
    sales were 10,000
  • 2,000 / 10,000 x 100 20
  • Using operating ratios helps determine which
    costs are too high or too low

10
Important Financial Ratios
  • Return on Sales (ROS) Sales / Net Profit
  • Shows how much of each dollar of sales the
    business keeps as profit
  • Also called profit margin
  • Low margin typical for high volume sales or high
    price items (20 ounce Coke or Cars)
  • High margin typical for low volume items or low
    price items (Flat screen t.v. or clothing)

11
Chapter 13 Objectives
  • Understand the elements of an income statement
  • Calculate the net profit or loss
  • Prepare a monthly income statement
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