Income Statement: The Entrepreneurs Scorecard

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Income Statement The Entrepreneurs Scorecard

• Chapter 13

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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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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

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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

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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

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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

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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

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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

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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

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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)

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Chapter 13 Objectives

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