This document discusses an overview of income statements and key income statement terms like revenue, cost of goods sold, gross profit, operating expenses, earnings before taxes, taxes, and net income. It provides an example income statement for a lemonade stand business and calculates key financial metrics like gross margin and net margin percentages. It then expands the example to include additional locations and expenses like interest from a loan to demonstrate how different line items are affected.

1. Lunch & LearnVI:
Financial Statements: Part 1
Income Statement
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Carolyn Goodman
CPAP.com

2. LemonADE Stand, Inc.
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3. Types of Financial StMTs
Income Statement
Balance Sheet
Statement of Cash Flows
Statement of Retained Earnings
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4. Question
What is the difference between:
Revenue
Gross Margin
Net Margin
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5. Income Statement
“A financial statement that measures a
company’s financial performance over a specific
accounting period.” - investopedia
Also known as a “profit & loss statement” (P&L)
Revenue - Expenses = Net Income
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6. Income Statement
Revenue (Sales, Income) $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
Lemonade Stand, Inc. May 2013 Income Statement
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7. Income Statement
Revenue = Sales
“Total income produced by a given source” -
Merriam-Webster
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8. INcome Statement
Revenue/Sales:
Sell each glass of lemonade for 50¢
100 glasses sold
100 * 50¢ = $50
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9. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
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10. INcome Statement
Cost of Goods Sold (COGS) (Product Costs):
Each glass of lemonade costs 20¢ per glass of
lemonade (cups, lemons, sugar)
100 glasses sold
100 * 20¢ = $20
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11. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
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12. INcome Statement
Gross Profit (Gross Margin) - the amount of
income you have left after product costs to cover
remaining expenses
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13. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
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14. INcome Statement
Operating Expenses (Costs):
Table $10
Chairs $4
Decorations $6
Pitcher $2
Employee (Sister) $3
Total Operating Expenses $25
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15. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
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16. INcome Statement
Net Income (Net Margin, Net Profit) -
Company’s total earnings (profit)
Net Income does not necessarily mean your
ending cash balance
Income Statement is not a Cash Flow Statement
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17. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net
Profit)
$5
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18. INcome Statement
“The only things certain in life are death &
taxes”
- Benjamin Franklin
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19. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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20. INcome Statement
Earnings before taxes (EBT) - Just as it says, the
amount of income after product costs and
operating expenses, before taxes are factored
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21. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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22. INcome Statement
Tax Expense:
Assuming:
a 35% income tax rate
no sales tax
EBT * tax rate = tax expense
$5 * 0.35 = $1.75
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23. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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24. INcome Statement
Calculating ratio margins - “everything in
relation to revenue”
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25. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net
Profit)
$3.25
Gross Margin % =
Gross Profit / Revenue
or:
(Revenue - COGS) /
Revenue
$30/$50 = 60%
or
($50-$20) / $50 = 60%
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26. Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net
Profit)
$3.25
Profit Margin % =
Net Income / Revenue
or:
(Revenue - COGS -
Expenses) / Revenue
$3.25/$50 = 6.5%
or
($50-$20-$25-$1.75) / $50
= 6.5%
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27. Income Statement
Sales Revenue $50 100%
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30 60%
Operating Expenses ($25)
Earnings before taxes (EBT) $5 10%
Tax Expense ($1.75)
Net Income (Net Margin, Net
Profit)
$3.25 6.5%
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28. INcome Statement
Lemonade Stand, Inc. decides to expand for June to 3 locations:
Increases prices each lemonade glass to 75¢ each
Cost per glass of lemonade 18¢
Cost per table $10 (3 tables) = $30
Cost per chair $2 (3 chairs) = $6
Cost of decorations $15
Cost per pitcher $1 (3 pitchers) = $3
Employees (Sister & Friend) $30
35% tax rate
Sold 195 glasses of lemonade
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29. Income Statement
Sales Revenue
Net Income (Net Margin, Net
Profit)
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30. Income Statement
Sales Revenue 100%
Cost of Goods Sold (COGS)
Gross Profit (Gross Margin)
Operating Expenses
Earnings before taxes (EBT)
Tax Expense
Net Income (Net Margin, Net
Profit)
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31. Income Statement
Sales Revenue $146.25 100%
Cost of Goods Sold (COGS) ($35.10)
Gross Profit (Gross Margin) $111.15 76%
Operating Expenses ($84.00)
Earnings before taxes (EBT) $27.15 19%
Tax Expense ($9.50)
Net Income (Net Margin, Net
Profit)
$17.65 12.1%
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32. Question
What is the difference between:
Revenue
Gross Margin
Net Margin
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33. INcome Statement
But what if Lemonade Stand, Inc. took out a loan
of $100 from Parents, Inc. that charged a 10%
interest rate for the expansion?
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34. Income Statement
Sales Revenue $146.25 100%
Cost of Goods Sold (COGS) ($35.10)
Gross Profit (Gross Margin) $111.15 76%
Operating Expenses ($84.00)
Earnings before interest & taxes (EBIT) $27.15 19%
Interest Expense ($10)
Earnings before taxes (EBT) $17.15 12%
Tax Expense ($6.00)
Net Income (Net Margin, Net Profit) $11.15 7.6%
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35. INcome Statement
How much cash does Lemonade Stand, Inc.
have?
More on that next time.....
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