Income Statement Net Sales - COGS = Gross Profit - Operating Expenses = Operating Income - Interest expenses & taxes = Net Income.

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Presentation transcript:

Income Statement Net Sales - COGS = Gross Profit - Operating Expenses = Operating Income - Interest expenses & taxes = Net Income

Gross Profit Net Sales – COGS = Gross Profit Cost of labor Cost of materials Cost of manufacturing overhead Cost of inventories Sales to customers; wholesalers & retailers ▬ = Profit after selling costs

Operating Income Gross Profit ▬ = Income from operations Administrative salaries Sales & marketing Research & development

Net Income Operating Income ▬ = Net Profit Interest expenses Taxes Miscellaneous other (e.g., accounting change)

Common Size Income Statement

Conclusions Changes in sales & profits? Ratios: Changes in gross profit to sales? … net profit to sales? … COGS to sales? … Expenses to sales?

Conclusions Changes in sales & profits? Sales down, profits down then up; why? Ratios Changes in gross profit to sales? Improved; why? … net profit to sales? Stable then down; why? … COGS to sales? Down; why? … Expenses to sales? Up; why?