chapter 3 FIN

chapter 3 FIN - Income statement Income statement (profit...

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Income statement Income statement (profit and loss statement): a basic accounting statement that measures the results of a firm’s operations over a specified period, commonly 1 year. Also known as the profit and loss statement. The bottom line of the income statement shows the firm’s profit or loss for the period Cost of goods sold: the cost of producing or acquiring a product or service to be sod in the ordinary course of business Gross profit: sales or revenue minus the cost of goods sold Operating expenses: marketing and selling expenses (cost of promoting the firm’s products or services to customers), general and administrative expenses (the firm’s overhead expenses, such as exective salaries and rent expense), and depreciation expense (a non cash expense to allocate the cost of depreciable assets, such as plan and equipment, over the life of the asset). Operating income(earnings before interest and taxes): sales less the cost of goods sold less operating expenses Operating activities: Sales – cogs = gross profit – operating expenses = operating income (earnings before interest and taxes) Financing activities: Operating income – interest expense (cost of borrowing money) = earnings before taxes – Income tax = net income Earnings before taxes (taxable income): operating income minus interest expense Financing cost: cost incurred by a company that often includes interest expenses and preferred dividends Net income(earnings available to common stockholders): a figure representing a firm’s profit or loss for the period. It also represents the earnings available to the firm’s common and preferred stockholders Earnings per share: net income on a per share basis Dividends per share: the amount of dividends a firm pays for each share outstanding. Common-sized income statement: an income statement in which a firm’s expenses and profits are expressed as a percentage of sales
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Profit margins: financial ratios (sometimes simply referred to as margins) that reflect the level of the firm’s profits relative to its sales. Examples include the gross profit margin (gross profit divided by
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This note was uploaded on 08/30/2011 for the course FIN 3310 taught by Professor Potts during the Fall '08 term at Baylor.

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chapter 3 FIN - Income statement Income statement (profit...

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