Income Statement AnalysisThis week’s DQ focuses on the Income Statement. It builds on the insights we gained in Week 2, but goes a little deeper in our use of financial statement analysis skills.
Locate and post a screen shot of an actual Income Statement from the latest fiscal year for one of the following companies:
Sears (Note: use this link Sears Holding Corp 10-K)
Tesla
Pick an Income Statement Line Item or Ratio from the list below:
Line ItemRatio
Revenue (aka Sales, Turnover)
Cost of Goods Sold/Cost of Sales
Salary Expense
Selling, General and Administrative Expense
Gross Profit
Operating Profit
Net Profit
Gross Margin (%)
Net Margin (%)
Salary Expense as % of Sales
Return on Sales
Return on Equity
Return on Assets
Earnings Per Share (EPS)
EBITDA
What does this line item or ratio measure and why is it important item for Management to understand this number?
Identify the past 4 years of amounts for your line item or ratio (Note: this will require you to track down additional historical Income Statements to get the older data). Share this data with the class using a data table or chart.
Answer the following questions:
What is the trend for this line item or ratio?
Has the line item or ratio amount increased or decreased?
Is this a “good” thing or a “bad” thing? For this company?
What might management do to improve this line item or ratio?
Post your initial response by Wednesday, midnight of your time zone, and reply to at least 2 of your classmates' initial posts by Sunday, midnight of your time zone.
Example from the Professor
Below is a Sample Post from a previous 530 Instructor.
Sample Post from Professor Brooks
This week I'd like to discuss "Earnings From Discontinued Operations, which is a line item in Procter & Gamble's income statement.
Definition
This line item summarizes the profit (revenue less expenses) related to “segments of a company’s business that have been sold, disposed of, abandoned, or being held for sale. Discontinued operations can range from a certain product line to an entire line of business (but would not include small divestiture of a single product that is not material to the business).” (1) GAAP distinguishes income from ‘continuing operations’ and ‘discontinued operations’ in order to communicate to investors that the company has disposed-of assets that generated a particular amount of profit and that only income from continuing operations should be expected to be earned next year. (2) Simply put, it is a line item intended to show what amount of profit will likely NOT be earned in subsequent years.
Is an increase in this account “good” or “bad?