The document provides an overview and introduction to financial statement analysis. It discusses the goals of understanding basic financial statements including the balance sheet, income statement, and statement of cash flows. It provides examples of how these statements interact using a fictional company as an illustration. The document also covers topics such as the difference between taxable income and net income, common financial metrics, and when additional analysis may be needed.
43. Income Statement GAIN CONTROL berrydunn.com Example C-Corp Income Statement for the Year Ending December 31, 2006 2007 2008 2009 Sales $15,000,000 $20,000,000 $25,000,000 $35,000,000 Cost of Sales 8,000,000 10,000,000 12,000,000 13,000,000 Gross Profit 7,000,000 10,000,000 13,000,000 22,000,000 Selling, General, & Admin 2,000,000 3,000,000 4,000,000 4,500,000 Operating Income 5,000,000 7,000,000 9,000,000 17,500,000 Interest Expense 450,000 400,000 350,000 300,000 Income before Income Taxes 4,550,000 6,600,000 8,650,000 17,200,000 Income Taxes 1,820,000 2,640,000 3,460,000 6,880,000 Net Income $2,730,000 $3,960,000 $5,190,000 $10,320,000 Reconciliation of Retained Earnings Retained Earnings, Beginning of Year 100,000 2,830,000 6,790,000 11,980,000 Net Income 2,730,000 3,960,000 5,190,000 10,320,000 Less: Distributions - - - - Retained Earnings, End of Year $2,830,000 $6,790,000 $11,980,000 $22,300,000
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45. Common Size Income Statement GAIN CONTROL berrydunn.com Example C-Corp Income Statement for the Year Ending December 31, 2006 2007 2008 2009 Sales $15,000,000 100.0% $20,000,000 100.0% $25,000,000 100.0% $35,000,000 100.0% Cost of Sales 8,000,000 53.3% 10,000,000 50.0% 12,000,000 48.0% 13,000,000 37.1% Gross Profit 7,000,000 46.7% 10,000,000 50.0% 13,000,000 52.0% 22,000,000 62.9% Selling, General, & Admin 2,000,000 13.3% 3,000,000 15.0% 4,000,000 16.0% 4,500,000 12.9% Operating Income 5,000,000 33.3% 7,000,000 35.0% 9,000,000 36.0% 17,500,000 50.0% Interest Expense 450,000 3.0% 400,000 2.0% 350,000 1.4% 300,000 0.9% Income before Income Taxes 4,550,000 30.3% 6,600,000 33.0% 8,650,000 34.6% 17,200,000 49.1% Income Taxes 1,820,000 12.1% 2,640,000 13.2% 3,460,000 13.8% 6,880,000 19.7% Net Income $2,730,000 18.2% $3,960,000 19.8% $5,190,000 20.8% $10,320,000 29.5%
46. Gross Profit / Gross Margin GAIN CONTROL berrydunn.com Example C-Corp Income Statement for the Year Ending December 31, 2006 2007 2008 2009 Sales $15,000,000 100.0% $20,000,000 100.0% $25,000,000 100.0% $35,000,000 100.0% Cost of Sales 8,000,000 53.3% 10,000,000 50.0% 12,000,000 48.0% 13,000,000 37.1% Gross Profit 7,000,000 46.7% 10,000,000 50.0% 13,000,000 52.0% 22,000,000 62.9% Selling, General, & Admin 2,000,000 13.3% 3,000,000 15.0% 4,000,000 16.0% 4,500,000 12.9% Operating Income 5,000,000 33.3% 7,000,000 35.0% 9,000,000 36.0% 17,500,000 50.0% Interest Expense 450,000 3.0% 400,000 2.0% 350,000 1.4% 300,000 0.9% Income before Income Taxes 4,550,000 30.3% 6,600,000 33.0% 8,650,000 34.6% 17,200,000 49.1% Income Taxes 1,820,000 12.1% 2,640,000 13.2% 3,460,000 13.8% 6,880,000 19.7% Net Income $2,730,000 18.2% $3,960,000 19.8% $5,190,000 20.8% $10,320,000 29.5%
47. Operating Profit / Margin GAIN CONTROL berrydunn.com Example C-Corp Income Statement for the Year Ending December 31, 2006 2007 2008 2009 Sales $15,000,000 100.0% $20,000,000 100.0% $25,000,000 100.0% $35,000,000 100.0% Cost of Sales 8,000,000 53.3% 10,000,000 50.0% 12,000,000 48.0% 13,000,000 37.1% Gross Profit 7,000,000 46.7% 10,000,000 50.0% 13,000,000 52.0% 22,000,000 62.9% Selling, General, & Admin 2,000,000 13.3% 3,000,000 15.0% 4,000,000 16.0% 4,500,000 12.9% Operating Income 5,000,000 33.3% 7,000,000 35.0% 9,000,000 36.0% 17,500,000 50.0% Interest Expense 450,000 3.0% 400,000 2.0% 350,000 1.4% 300,000 0.9% Income before Income Taxes 4,550,000 30.3% 6,600,000 33.0% 8,650,000 34.6% 17,200,000 49.1% Income Taxes 1,820,000 12.1% 2,640,000 13.2% 3,460,000 13.8% 6,880,000 19.7% Net Income $2,730,000 18.2% $3,960,000 19.8% $5,190,000 20.8% $10,320,000 29.5%
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49. Statement of Cash Flows GAIN CONTROL berrydunn.com Example C-Corp Statement of Cash Flows for the Year Ending December 31, 2006 2007 2008 2009 Cash Flows from Operations Net Income $2,730,000 $3,960,000 $5,190,000 $10,320,000 Adjustments to Net Income Depreciation 100,000 100,000 100,000 100,000 Accounts Receivable (450,000) (100,000) (100,000) (2,300,000) Inventory (50,000) (850,000) (1,000,000) (4,000,000) Accounts Payable 5,000 5,000 10,000 10,000 Net Cash Flows from Operations 2,335,000 3,115,000 4,200,000 4,130,000 Cash Flow from Investing Purchase of Property, Plant & Equip (1,109,000) (100,000) (100,000) (100,000) Net Cash Used by Investments (1,109,000) (100,000) (100,000) (100,000) Cash Flow from Financing Principal Payments on Long-Term Debt (100,000) (100,000) (100,000) (100,000) Distributions - - - - Net Cash Used by Financing (100,000) (100,000) (100,000) (100,000) Cash, Beginning of Period 30,000 1,156,000 4,071,000 8,071,000 Cash, End of Period $1,156,000 $4,071,000 $8,071,000 $12,001,000
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54. Quick Review GAIN CONTROL berrydunn.com Term What is it? Working Capital Used to fund ongoing operations (Current Assets – Current Liabilities) Liquidity How much cash can be generated from current assets and liabilities Gross Profit Money left after production (Revenue – COGS) Operating Profit Money left after overhead (Gross Profit – Operating Expenses) EBITDA Proxy for cash flow (Operating Income + Interest, Taxes, Depreciation, and Amortization) Cash Flow from Operations How much cash is generated from making and selling the product
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