Lecture11 - Lecture 11 Common-Size Income Statement Review...

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Lecture 11 Common-Size Income Statement
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Review • Gross Sales (or Revenue) - management’s estimate of Sales Returns = Net Sales – Inspect management’s estimate and make judgments about the business and veracity of the reported net sales figure • Gross A/R – management’s estimate for allowance for doubtful accounts (“bad debt’) = Net A/R – Inspect management’s estimate and make judgments about the types of customers the company is selling to and whether the income statement (net income) reflects that 2
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3 Today • Common-Size Income Statement • Focus on “margins” – Gross margin – Operating margin – Net margin – Effective tax rate • Earnings per share • Mid-Term
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4 Common-Size Income Statement • All income statement line items expressed as a percentage of total sales – Divide all line item amounts by total sales – Removes “scale” effects; makes everything comparable across companies – Percentages often referred to as “margins” • Facilitates comparison of a single company with itself over time • Facilitates comparison of several companies at the same time
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5 Common-Size I/S Example 2008 2007 2006 2008 2007 2006 Total Sales 54,654,654 48,000,000 44,000,000 100.0% 100.0% 100.0% Cost of Sales 34,500,000 32,000,000 30,000,000 63.1% 66.7% 68.2% Gross Profit 20,154,654 16,000,000 14,000,000 Gross Margin 36.9% 33.3% 31.8% 2,400,000 2,100,000 1,873,703 4.4% 4.4% 4.3% 900,000 700,000 500,000 1.6% 1.5% 1.1% 950,000 910,000 900,000 1.7% 1.9% 2.0% Total operating expenses 4,250,000 3,710,000 3,273,703
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This note was uploaded on 06/28/2009 for the course ACCT 101 taught by Professor Armstrong during the Summer '09 term at UPenn.

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Lecture11 - Lecture 11 Common-Size Income Statement Review...

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