CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 15-2LESSON 15-2

Analyzing an Income Statement

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

NotesNotes

Component Percentages = component / net sales

Acceptable Component Percentages

Sales 100% CMS not more than 46.0% Gross Profit not less than 54.0% Total Expenses not more than 35% % Net Income before tax not less than 19.0%

To double check CMS + GP = 100 OR CMS, Total Exp, NI before taxes = 100

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LESSON 15-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

NotesNotes

Financial Ratios (EPS) Earnings per share – amount of net income after tax

belonging to a single share of stock Formula: Net income after tax / # of shares outstanding

(P-E ratio) Price earnings ratio – compare current price to earnings per share

Formula: Market price per share / EPS

3

LESSON 15-2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

4

LESSON 15-2

ANALYZING AN INCOME STATEMENT ANALYZING AN INCOME STATEMENT SHOWING A NET LOSSSHOWING A NET LOSS page 457

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

5

LESSON 15-2

Price-EarningsRatio

=Earnings

perShare

÷Market Price

per Share

Earningsper Share

=Number of

SharesOutstanding

÷Net Incomeafter FederalIncome Tax

FINANCIAL RATIOSFINANCIAL RATIOS page 459

Earnings per Share

Price-Earnings Ratio

$32.13=2,500÷$80,313.95

10.7=$32.13÷$345.00

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

6

LESSON 15-2

TERMS REVIEWTERMS REVIEW

financial ratio earnings per share price-earning ratio

page 460