Why Engineers need to understand the

financial statements?

Contemporary Engineering Economics, 5th edition. ©2010

Understanding Financial
Statements
 Accounting: The Basis
of Decision-Making
 Financial Statements:
Financial Status for
Businesses

Contemporary Engineering Economics, 5th edition. ©2010

Accounting – The Language of Business

Contemporary Engineering Economics, 5th edition. ©2010

Financial Status for Business

Contemporary Engineering Economics, 5th edition. ©2010

Basic Income Statement Equation

Revenue
-
Expenses

Net Income (Loss)

Contemporary Engineering Economics, 5th edition. ©2010

Why Gross Margin is a Critical Measure for
Engineers?

Sales

Cost of Goods Sold

Gross Margin

Contemporary Engineering Economics, 5th edition. ©2010

How to Use Profit Check Points
ABC Company, Inc.
Statement of Operations (Year Ended December 31, 20xx)
Sales $5,000,000 100.0%

Less: Cost of Goods Sold 3,250,000 65.0%

Gross Profit (margin) 1,750,000 35.0%
Less: Selling, G&A Expenses 1,000,000 20.0%
Operating Profit (margin) 750,000 15.0%
Less: Interest 250,000 5.0%
Net Income Before Taxes (NIBT) 500,000 10.0%
Less: Taxes 175,000 3.5%
Net Income (margin) $325,000 6.5%

Bottom line
Contemporary Engineering Economics, 5th edition. ©2010
The Income Statement – Research In Motion Ltd.
FY 2009

100.00% Revenue

46.07% Gross margin

24.60% Operating margin

17.10% Net margin

Contemporary Engineering Economics, 5th edition. ©2010