Cracking the code of the Income Statement - Deepstash

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Cracking the code of the Income Statement

It consists of three main categories:

  • Sales or revenue during a given time period. It includes sales (revenue) and Earnings-per-share (EPS)
  • Costs and expenses: “Above the line” are the cost of goods sold (COGS), cost of services (COS). “Below the line” are operating expenses, interest, taxes, depreciation and amortization.
  • Profit: Profit is an estimate. You can’t spend estimates. 

Different kinds of profit:

  • Profit = Revenue - expenses
  • Gross profit = Sales - COGS
  • Operating profit (EBIT) = Gross Profit - Operating expenses
  • Net Profit = Operating Profit - (interest + taxes + other costs)

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MORE IDEAS FROM THE SAME BOOK

Understanding how the numbers are used and what are assumptions puts you in control of the decisions.

Financially intelligent managers understand the four distinct skill sets:

The art of accounting is taking a limited set of data to get an accurate description of how well a company is doing.

Accountants use accruals and allocations to attempt an accurate picture of the business for a month.

A balance sheet shows what a business owns at a particular time. A balance sheet always balances. Assets = liabilities + owners’ equity.

Profit is not cash. A healthy business needs both profit and cash.

A good manager is aware of how both cash and profits affect a balance sheet. A balance sheet shows if a company is financially healthy.

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This book teaches the fundamentals of owner compensation, profit targets, labour productivity, cash flow, and data reporting. Clear explanations and helpful illustrations throughout make it a must-read guide for small business owners looking to achieve higher profits.

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