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Basic Financial Statements

 Self-Paced Overview

The Income Statement

A basic overview of income statement items shows how a manufacturing company might present an income statement. Income statements for other companies may appear to be slightly different, but in general the construction would be the same.

An important concept in understanding the income statement is Earnings Per Share (EPS). The EPS for a company is net income divided by the number of shares of common stock outstanding. It represents the bottom line for a company.

Companies continually make decisions on how their bottom line will be impacted since shareholders in the company are concerned with how management decisions affect individual shareholder position.

Income Statement
Products, Inc.

 
January 1, 2017

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Sales:Selling price of product × number of products sold.Cost of Goods Sold:Materials and labor expenses for products sold. Sales 125,000 units @$125 each $ 15,625,000
− Cost of Goods Sold − 10,000,000
Gross Profit:Sales minus cost of goods sold.Selling, General, Administrative Costs:Items such as rent, executive salaries, sales commissions. Gross Profit 5,625,000
− Selling, General, Administrative Costs − 2,350,000
Operating Income Before Depreciation:Gross profits minus selling, general and administrative costs.Depreciation, Amortization, Depletion:Noncash expenses reflecting decline in asset value. Operating Income Before Depreciation 3,275,000
− Depreciation, Amortization, Depletion − 10,500
Operating Profit:Operating income before depreciation minus depreciation.Interest Expense:Financial expenses on borrowed funds for current income period. Operating Profit 3,264,500
− Interest Expense − 90,000
Non operating Income:Income arising from sources other than primary operations. For instance, a manufacturing company's dividend income on investments.Non operating Expenses:Expenses arising from sources other than primary operation. Non operating Income 40,000
− Non operating Expenses − 50,000
Pretax Income:Operating profits minus interest and non operating expenses plus non operating income.Income Taxes:Tax expense on income for current income period. Pretax Accounting Income 3,164,500
− Income Taxes − 1,550,000
Income Before Extraordinary Items:Pretax income minus income taxes. Income Before Extraordinary Items 1,614,500
− Preferred Stock Dividends − 90,000
Income Available for Common Stockholders:Income before extraordinary items less preferred dividends.Extraordinary Items:Items that do not arise in the ordinary course of business. Must be unusual and occur infrequently. An example might be loss from a hurricane.Discontinued Operations:Writing off of a discontinued line of business. Income Available for Common Stockholders 1,524,500
− Extraordinary Items
− Discontinued Operations
− 20,000
− 500,000
Adjusted Net Income:Income Available for Common Stockholders minus Extraordinary Items and Discontinued Operations. The final result for the current financial period for a company. Out of this figure common stock dividends will be paid and the remainder will be shown as a transfer to retained earnings. Adjusted Net Income $ 1,004,500
Earnings Per Share:Adjusted Net Income divided by the Number of Shares of Stock Outstanding. Earnings Per Share (900,000 shares of stock) $ 1.12

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