17-Feb-20

INCOME STATEMENT

COMPONENTS
•"statement of operations,“ the "statement of earnings," or the
"profit and loss statement.
•revenues - expenses = net income
•IFRS
•Investor vs. Lender Perspectives

1
 17-Feb-20

COMPONENTS
Revenues
Net Revenue
Expenses
Grouping of Expenses
Gains & Losses
Non Controlling Interest

2

Sale of Goods
1 . The risk and reward of
ownership is transferred.
2. There is no continuing control
or management over the goods
sold.
3. Revenue can be reliably
measured.
4. There is a probable flow of
economic benefits.
5. The cost can be reliably
measured
17-Feb-20
REVENUES
Services
1 . The amount of revenue can
be reliably measured.
2. There is a probable flow of
economic benefits.
3. The stage of completion can
be measured.
4. The cost incurred and cost of
completion can be reliably
measured
3
 17-Feb-20

EXCEPTIONS – LONG TERM CONTRACTS

Long Term Contracts

Percentage of Completion Method
 total cost incurred to date divided by the total expected
cost of the project.

4
 17-Feb-20

EXCEPTIONS - INSTALLMENTS
Installment Method (Profit is equal to cash collected during the
period multiplied by the total expected profit as a percentage of
sales)
Cost Recovery Method

5
 17-Feb-20

GROSS & NET REPORTING OF REVENUE

Gross Revenue Reporting
selling firm reports sales revenue and cost of goods
sold separately
Net Revenue Reporting
only the difference in sales and cost is
reported

FINANCIAL ANALYSIS

(1) how conservative are the firm's revenue recognition policies

(recognizing revenue sooner rather than later is more aggressive),
and
(2) the extent to which the firm's policies rely on judgment and
estimates.

6
 17-Feb-20

EXPENSES

Expense Recognition
Matching Principle
Period Costs

7
 17-Feb-20

INVENTORY COSTING

Specific Identification
FIFO
LIFO
Weighted Average Cost
(*Use Find Option for your financial statements)

8
 17-Feb-20

DEPRECIATION EXPENSE
Depreciation, Amortization, Depletion
Straight Line vs. Acceleration Depreciation

9
 17-Feb-20

DECLINING/DIMINISHING BALANCE METHOD

AMORTIZATION EXPENSE
Straight Line Method
Indefinite Lives
Impairment

10
 17-Feb-20

BAD DEBT EXPENSE & WARRANTY EXPENSE

Estimate bad debt expense in the period of sale

FINANCIAL ANALYSIS
Bad Debt decreased
Less Warranty Expense

11
 17-Feb-20

NON REOCCURRING ITEMS

Discontinued Operations
 Measurement Date
 Phase Out Period
 Analytical Implications

Unusual or Infrequent Items

Not Both
Gains/Losses
Impairement, Write Offs, Write Downs, Restructuring Costs
Reported Before Tax

CHANGES IN ACCOUNTING STANDARDS

Principles or Estimates or Prior Period Adjustment
Retrospective Application
Change in Estimate applied Prospectively
Reported as Prior Period Adjustment
Analytical Implication

12
 17-Feb-20

OPERATING AND NON-OPERATING COMPONENTS

OF THE INCOME STATEMENT.
Dividends
Interests
Gains/Losses on Securities
Financial firm vs. Non Financial Firm

EARNINGS PER SHARE

13
 17-Feb-20

Profitability Performance Measure

Only for Shares of Common Stock
Basic or Diluted

BASIC EPS
Does not consider the effects of any dilutive securities

14
 17-Feb-20

EFFECT OF STOCK DIVIDENDS AND STOCK SPLIT

Proportional Ownership Unchanged
More Shares but Same Percentage

15
 17-Feb-20

DILUTED EPS
Dilutive Securities
Anti Dilutive Securities

Convertible Preferred Shares Treatment

Convertible Bond Treatment
Stock Options or Warrants

16
 17-Feb-20

EQUATION FOR DILUTED EPS

17
17-Feb-20

18
17-Feb-20

19
 17-Feb-20

COMMON SIZE INCOME STATEMENT &

FINANCIAL RATIOS

Expresses each category of the income statement as a percentage

of revenue
Eliminating the effects of size
Time-series analysis
Cross-sectional analysis

20
 17-Feb-20

RATIOS

21
 17-Feb-20

RATIOS

COMPREHENSIVE INCOME

22
 17-Feb-20

COMPREHENSIVE INCOME
Includes all changes in equity except for owner
contributions and distributions.
1 . Foreign currency translation gains and losses.
2. Adjustments for minimum pension liability.
3. Unrealized gains and losses from cash flow hedging derivatives.
4. Unrealized gains and losses from available-for-sale securities.

23