Non Abm 1 Information Sheet 3.2

ST.
ANTHONY COLLEGE
NON-ABM 1 MODULE
CALAPAN CITY, INC.
INFORMATION SHEET 3.2
Understanding Income Statements

The income statement presents the financial results of a business
for a stated period of time. The statement quantifies the amount of
revenue generated and expenses incurred by an organization during a
reporting period, as well as any resulting net profit or loss. The final net
figure and other numbers in the statement are of major interest to investors
and analysts.
How to Use an Income Statement
An income statement can be used to develop ratios that can

pinpoint areas of improvement for a business, such as the gross margin
ratio (calculated as the gross margin divided by sales) and the net profit
ratio (calculated as the net profit or loss divided by sales). It is also use to
track income statement line items over time, to see if there are any spikes
or dips in the data that indicate the presence of problems that
management should address.
Components of an Income Statement

The income statement may have minor variations between different
companies, as expenses and income will be dependent on the type of
operations or business conducted.
The most common income statement items include:
Revenue/Sales – It is the company’s revenue from sales or services,
displayed at the very top of the statement. This value will be the gross of the
costs associated with creating the goods sold or in providing services.
Cost of Goods Sold (COGS) - is a line-item that aggregates the direct costs
associated with selling products to generate revenue. This line item can also
be called Cost of Sales if the company is a service business. Direct costs can
include labor, parts, materials, and an allocation of other expenses such as
depreciation.
Gross Profit- Gross profit is calculated by subtracting Cost of Goods Sold (or
Cost of Sales) from Sales Revenue.
Marketing, Advertising, and Promotion Expenses- Marketing, advertising,
and promotion expenses are often grouped together as they are similar
expenses, all related to selling.
ST. ANTHONY COLLEGE
NON-ABM 1 MODULE
CALAPAN CITY, INC.
Selling, General and Administrative (SG&A) Expenses - include the selling,

general, and administrative section that contains all other indirect costs
associated with running the business. This includes salaries and wages, rent
and office expenses, insurance, travel expenses, and sometimes depreciation
and amortization, along with other operational expenses.
EBITDA- stands for Earnings before Interest, Tax, Depreciation, and
Amortization. It is calculated by subtracting SG&A expenses (excluding
amortization and depreciation) from gross profit.
Depreciation & Amortization Expense- are non-cash expenses that are
created by accountants to spread out the cost of capital assets such as
Property, Plant, and Equipment (PP&E).
Operating Income (or EBIT)- represents what’s earned from regular
business operations. In other words, it’s the profit before any non-operating
income, non-operating expenses, interest, or taxes are subtracted from
revenues. EBIT is a term commonly used in finance and stands for Earnings
Before Interest and Taxes.
Interest Expense -It is common for companies to split out interest expense
and interest income as a separate line item in the income statement. This is
done in order to reconcile the difference between EBIT and EBT. Interest
expense is determined by the debt schedule.
Other Expenses - include fulfillment, technology, research and
development (R&D), stock-based compensation (SBC), impairment charges,
gains/losses on the sale of investments, foreign exchange impacts, and many
other expenses are industry or company-specific.
EBT - stands for Earnings Before Tax, also known as pre-tax income, and is
found by subtracting interest expense from Operating Income. This is the final
subtotal before arriving at net income.
Income Taxes - refer to the relevant taxes charged on pre-tax income. The
total tax expense can consist of both current taxes and future taxes.
Net Income- is calculated by deducting income taxes from pre-tax income.
This is the amount that flows into retained earnings on the balance sheet,
after deductions for any dividends.
ST. ANTHONY COLLEGE
NON-ABM 1 MODULE
CALAPAN CITY, INC.
Example of an Income Statement:
Hegemony Toy Company

Income Statement
For the years ended December 31
(000s) 20x2 20x1
Revenue $1,000,000 $800,000
Other income 10,000 15,000
Changes in finished goods inventories (320,000) (205,000)
Raw materials used (70,000) (80,000)
Employee benefits expense (150,000) (210,000)
Depreciation and amortization expense (120,000) (105,000)
Impairment of property, plant, and equipment 0 (35,000)
Other expenses (55,000) (61,000)
Finance costs (19,000) (20,000)
Profit before tax 276,000 99,000
Income tax expense (95,000) (35,000)
Profit for the year from continuing operations 181,000 64,000
Loss for the year from discontinued operations (35,000) 0
PROFIT FOR THE YEAR $146,000 $64,000
Earnings per share:
Basic $0.15 $0.11
Diluted 0.07 0.08
Prepared by:
MA. ELOISA M. TUERTO, MBA

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ST.

INFORMATION SHEET 3.2

Understanding Income Statements

An income statement can be used to develop ratios that can

Components of an Income Statement

Selling, General and Administrative (SG&A) Expenses - include the selling,

Example of an Income Statement:

Hegemony Toy Company

MA. ELOISA M. TUERTO, MBA

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