Understanding Income Statements and Financial Analysis

Part I The income statement is one of the financial statements used to report a company's financial information. An income statement shows how much money a company has earned after all expenses. The income statement reports its' information for a specific time period. Companies typically produce an income statement yearly, but must submit one to the SEC quarterly (Silva, 2022). According to the Wall Street Survivor video on YouTube, your Net Income is Revenue minus Expenses. Your income statement will include revenue, cost of goods sold, operating expenses and taxes or interest. There is no one way to create a income statement. Typically, you'll see it broken down as Revenue, Expenses, and net income. Investors and managers have high interest in income statements. This gives them enough information to make informed decisions. With the information provided in the income statement, they can see how profitable the company is and what makes them profitable. Investors and managers can see if cost of goods sold increase, the net income will decrease. Also, other companies could use this information to compare themselves and see what they need to do to succeed or surpass a company. Breaking down the income statement. Revenue is the money earned from sales. Revenues are accounted for when a sale or service is made. You will include this even when cash is not in hand. Cost of goods sold is any expenses that went into fostering the product or service. An example of this would be a restaurant putting down their food in cost of goods. Operating expenses or selling, general, and administrative expenses are expenses that go into the company to get it running like rent and salaries. Labor would also be included in this section. Lastly, the taxes or interest section will include taxes or incomes incurred by the company. Part II 1. The cost of sales for the company is $225,000. Cost of sales are the expenses that goes in to producing the product or service. I believe the inventory would be included in the company's balance sheet under assets. 2. Gross profit is important because it shows how efficient a company is operating. If a company has a high cost of sales, it may indicate that the company is not uses its' resources efficiently. If we added $20,000 to cost of sales, that would bring the cost of sales total to $245,000. 525,000 - 245,000 = 280,000. Our new gross income would be $280,000. 3. The total operating expenses is $208,250. The operating expenses is what is needed to run the company day to day. Some examples include, salaries, lease and taxes. 4. The company does have employees because for the period ending 31 December, there was a total of $75,000 in salaries.