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CPAP.com Lunch and Learn - Carolyn Goodman - Overview of Financial Statements part 1
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Lunch & Learn VI:Financial Statements: Part 1
Income Statement
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Carolyn GoodmanCPAP.com
LemonADE Stand, Inc.
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Types of Financial StMTs
Income Statement
Balance Sheet
Statement of Cash Flows
Statement of Retained Earnings
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Question
What is the difference between:
Revenue
Gross Margin
Net Margin
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Income Statement
“A financial statement that measures a company’s financial performance over a specific accounting period.” - investopedia
Also known as a “profit & loss statement” (P&L)
Revenue - Expenses = Net Income
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Income Statement
Revenue (Sales, Income) $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
Lemonade Stand, Inc. May 2013 Income Statement
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Income Statement
Revenue = Sales
“Total income produced by a given source” - Merriam-Webster
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INcome Statement
Revenue/Sales:
Sell each glass of lemonade for 50¢
100 glasses sold
100 * 50¢ = $50
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
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INcome Statement
Cost of Goods Sold (COGS) (Product Costs):
Each glass of lemonade costs 20¢ per glass of lemonade (cups, lemons, sugar)
100 glasses sold
100 * 20¢ = $20
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
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INcome Statement
Gross Profit (Gross Margin) - the amount of income you have left after product costs to cover remaining expenses
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
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INcome Statement
Operating Expenses (Costs):
Table $10
Chairs $4
Decorations $6
Pitcher $2
Employee (Sister) $3
Total Operating Expenses $2514
Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
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INcome Statement
Net Income (Net Margin, Net Profit) - Company’s total earnings (profit)
Net Income does not necessarily mean your ending cash balance
Income Statement is not a Cash Flow Statement
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Net Income (Net Margin, Net Profit) $5
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INcome Statement
“The only things certain in life are death & taxes”
- Benjamin Franklin
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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INcome Statement
Earnings before taxes (EBT) - Just as it says, the amount of income after product costs and operating expenses, before taxes are factored
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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INcome Statement
Tax Expense:
Assuming:
a 35% income tax rate
no sales tax
EBT * tax rate = tax expense
$5 * 0.35 = $1.7522
Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
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INcome Statement
Calculating ratio margins - “everything in relation to revenue”
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
Gross Margin % = Gross Profit / Revenue
or:(Revenue - COGS) /
Revenue
$30/$50 = 60%or
($50-$20) / $50 = 60%
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Income Statement
Sales Revenue $50
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30
Operating Expenses ($25)
Earnings before taxes (EBT) $5
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit) $3.25
Profit Margin % = Net Income / Revenue
or:(Revenue - COGS -
Expenses) / Revenue
$3.25/$50 = 6.5%or
($50-$20-$25-$1.75) / $50 = 6.5%
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Income Statement
Sales Revenue $50 100%
Cost of Goods Sold (COGS) ($20)
Gross Profit (Gross Margin) $30 60%
Operating Expenses ($25)
Earnings before taxes (EBT) $5 10%
Tax Expense ($1.75)
Net Income (Net Margin, Net Profit)
$3.25 6.5%
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INcome Statement
Lemonade Stand, Inc. decides to expand for June to 3 locations:
Increases prices each lemonade glass to 75¢ each
Cost per glass of lemonade 18¢
Cost per table $10 (3 tables) = $30
Cost per chair $2 (3 chairs) = $6
Cost of decorations $15
Cost per pitcher $1 (3 pitchers) = $3
Employees (Sister & Friend) $30
35% tax rate
Sold 195 glasses of lemonade28
Income Statement
Sales Revenue
Net Income (Net Margin, Net Profit)
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Income Statement
Sales Revenue 100%
Cost of Goods Sold (COGS)
Gross Profit (Gross Margin)
Operating Expenses
Earnings before taxes (EBT)
Tax Expense
Net Income (Net Margin, Net Profit)
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Income Statement
Sales Revenue $146.25 100%
Cost of Goods Sold (COGS) ($35.10)
Gross Profit (Gross Margin) $111.15 76%
Operating Expenses ($84.00)
Earnings before taxes (EBT) $27.15 19%
Tax Expense ($9.50)
Net Income (Net Margin, Net Profit)
$17.65 12.1%
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Question
What is the difference between:
Revenue
Gross Margin
Net Margin
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INcome Statement
But what if Lemonade Stand, Inc. took out a loan of $100 from Parents, Inc. that charged a 10% interest rate for the expansion?
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Income Statement
Sales Revenue $146.25 100%
Cost of Goods Sold (COGS) ($35.10)
Gross Profit (Gross Margin) $111.15 76%
Operating Expenses ($84.00)
Earnings before interest & taxes (EBIT) $27.15 19%
Interest Expense ($10)
Earnings before taxes (EBT) $17.15 12%
Tax Expense ($6.00)
Net Income (Net Margin, Net Profit) $11.15 7.6%
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INcome Statement
How much cash does Lemonade Stand, Inc. have?
More on that next time.....
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