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#CFA: Learn to develop income statements in detail


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#CFA: Learn to develop income statements in detail

  1. 1. Income Statement Introduction © EduPristine –
  2. 2. How do you manage your revenues and expenses? • • • • Earn a salary and possibly commission Pay rent or a mortgage Pay for transportation, food, and entertainment Pay taxes – Some expenses are tax deductible (i.e. interest on mortgage) while some are not (i.e. dinner at a restaurant) © EduPristine | (Confidential) 2
  3. 3. Companies manage their revenues and expenses similarly • • • • • Earn revenues from core and affiliate businesses Pay for the raw materials needed to create finished products Pay for general and administrative expenses such as salary to employees Pay interest on money borrowed Pay taxes – Some items are tax deductible (i.e. interest on debt) while others aren’t (repaying borrowed money) © EduPristine | (Confidential) 3
  4. 4. Company’s Income Statement • • • Revenues and expenses over a period of time (1 year, 1 quarter, etc.) From total sales to net income Transactions taking place during the income statement’s period of time are included, regardless of whether cash  is exchanged immediately © EduPristine | (Confidential) 4
  5. 5. Income Statements ‐ Meaning Financial Statement which provide information about the financial performance of the company is called as Income  Statement or Profit & Loss statement or Statement of earnings or Statement of Operations Revenue Expenses 1. Sales of goods 1. Purchase of goods 2. Commission received  2. Manufacturing 3. Gain on sale of investment 3. Administrative 4. Other incomes 4. Selling & Distribution 5. Income from Services 5. Depreciation 6. Finance exp 7. Loss on sale of investment It is always calculated for a specified PERIOD © EduPristine | (Confidential) 5
  6. 6. Presentation Format Income Statement Sales (Less) COGS Gross Profit Operating Profit (Less) (Less) (Less) Selling Exp Administrative Exp General Exp EBITDA (Less) Depreciation EBIT  (Less) Interest EBT (Less) Income Tax Net Income © EduPristine | (Confidential) 6
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