Income Statement
What is an income statement?
An income statement shows a company’s revenues, costs and profit over a period of time (quarter/year)
What is a balance sheet?
A balance sheet is a snapshot of what a company owns and owes on a specific date
What is a cash flow statement?
A cash flow statement tracks cash that came in and went out over a period of time
List 3 key terms in an income statement
Revenue: total sales
Cost of Sales: direct cost of making/buying what was sold
Gross Profit: revenue - cost of sales
Operating Expenses: marketing, salaries, overhead
Operating Income: gross profit - operating expenses
Interest, Other Items, and Taxes: financing costs and income, then taxes
Net Income: total revenue - total costs
What is the key formula of a balance sheet?
Key Formula: Assets = Liabilities + Equity (Accounting Equation)
List 2 key terms in a cash flow statement
Operating Activities: cash flow from a company's core business operations
Investing Activities: cash movements related to long-term investments
Financing: how a company raises/repays capital through debt/equity financing
Net Change in Cash (ending cash balance - beginning cash balance): shows increase or decrease in cash/cash equivalents
How do you calculate annual revenue growth?
Current Revenue - Previous Year Revenue)/Previous Year Revenue
How do you calculate shareholders' equity?
Shareholders equity = assets - liabilities
How do you calculate free cash flow, and what does it mean?
Free Cash Flow: operating cash flow - capex (equipment spending); cash left over maintaining and growing the business
What is net margin, and how do you calculate it?
Net margin (net income/revenue): how much profit each $1 of sales produces
How do you calculate the debt-to-equity ratio, and what does it represent?
Debt-to-equity: total liabilities/total equity (how much the company relies on borrowed money vs. owners' money)
What is the free cash flow margin, and how do you calculate it?
Free Cash Flow Margin (fcf/revenue): cash left per $1 of sales
What is growth margin, and how do you calculate it?
Gross margin (gross profit/revenue): how much is left after making the product
What is the current ratio, and what does it represent?
Current ratio: current assets/current liabilities (ability to pay off short-term obligations using short-term assets)
Given these values, calculate the free cash flow margin:
Operating cash flow = 50
Capex (equipment spending) = 30
Revenue = 100
Free cash flow margin = (operating cash flow - capex)/revenue
(50-30)/100 = 0.30 (30%)