Download Understanding an Income Statement: Net Sales, Cost of Merchandise, and Profit Calculation and more Study notes Mathematics in PDF only on Docsity! MTH 130 Modern Business Mathematics Brigitte Martineau Section 6.1 Page 1 of 6 Income Statements An income statement is a financial statement that shows: • • • There are 5 major items on an income statement: 1. Net Sales: The actual sum of __________________ received after all returns and allowances have been made. 2. Cost of Merchandise: The total purchase price of merchandise sold to customers (including ________________ and ____________________.) 3. Gross Profit: The total _______________________ between net sales and cost of merchandise. 4. Operating Expenses: Expenses incurred while doing business, unrelated to ____________________ Examples: 5. Net Profit: The total difference between gross profit and operating expenses. Net profit can be kept by owners, __________________, or _________________ Net profit is subject to ___________________ tax. Always remember that these five items are related by 2 equations: Net Sales – Cost of Merchandise = Gross Profit Gross Profit – Operating Expenses = Net Profit MTH 130 Modern Business Mathematics Brigitte Martineau Section 6.1 Page 2 of 6 Example: Complete the following income statement. Item Amount % of Net Sales Gross sales $ 350,000 Returns/Allowances $ 50,000 Net Sales $ Cost of Merchandise: Beginning Inventory $ 200,000 Additional Purchases $ 80,000 Total Available $ Ending Inventory $ 100,000 Cost of Merchandise $ Gross Profit $ Operating Expenses: Salaries $ 70,000 Rent $ 20,000 Utilities $ 10,000 Other $ 3,000 Total $ Net Profit $ How much of each $1 of net sales is spent on salaries? How much of each $1 of net sales is spent on Merchandise? MTH 130 Modern Business Mathematics Brigitte Martineau Section 6.1 Page 5 of 6 Eastman Kodak Company CONSOLIDATED STATEMENT OF EARNINGS For the Year Ended December 31, (in millions, except per share data) 2004 2003 2002 (Restated) Net sales $ 13,517 $ 12,909 $ 12,549 Cost of goods sold 9,548 8,734 8,022 Gross profit 3,969 4,175 4,527 Selling, general and administrative expenses 2,507 2,618 2,504 Research and development costs 854 776 757 Restructuring costs and other 695 479 98 (Losses) earnings from continuing operations before interest, other income (charges), net and income taxes (87) 302 1,168 Interest expense 168 147 173 Other income (charges), net 161 (51) (101) (Loss) earnings from continuing operations before income taxes (94) 104 894 (Benefit) provision for income taxes (175) (85) 133 Earnings from continuing operations $ 81 $ 189 $ 761 Earnings from discontinued operations, net of income taxes $ 475 $ 64 $ 9 NET EARNINGS $ 556 $ 253 $ 770 Basic net earnings per share: Continuing operations $ .28 $ .66 $ 2.61 Discontinued operations 1.66 .22 .03 Total $ 1.94 $ .88 $ 2.64 Diluted net earnings per share: Continuing operations $ .28 $ .66 $ 2.61 Discontinued operations 1.66 .22 .03 Total $ 1.94 $ .88 $ 2.64 Cash dividends per share $ .50 $ 1.15 $ 1.80 MTH 130 Modern Business Mathematics Brigitte Martineau Section 6.1 Page 6 of 6 PAYCHEX, INC. CONSOLIDATED STATEMENTS OF INCOME In thousands, except per share amounts Year ended May 31, 2005 2004 2003 Revenues: Service revenues $ 1,384,674 $ 1,240,093 $ 1,046,029 Interest on funds held for clients 60,469 54,254 53,050 Total revenues 1,445,143 1,294,347 1,099,079 Expenses: Operating expenses 329,507 303,465 258,862 Selling, general, and administrative expenses 581,861 557,567 439,176 Total expenses 911,368 861,032 698,038 Operating income 533,775 433,315 401,041 Investment income, net 12,391 16,469 30,503 Income before income taxes 546,166 449,784 431,544 Income taxes 177,317 146,834 138,092 Net income $ 368,849 $ 302,950 $ 293,452 Basic earnings per share $ 0.97 $ 0.80 $ 0.78 Diluted earnings per share $ 0.97 $ 0.80 $ 0.78 Weighted-average common shares outstanding 378,337 377,371 376,263 Weighted-average common shares outstanding, assuming dilution 379,763 379,524 378,083 Cash dividends per common share $ 0.51 $ 0.47 $ 0.44
