Create an income Create an income statementstatement• Introduction to finance & economics • By Eric Desmond

IntroductionIntroductionThere are (4) parts to a set of financial statements:

1) Income statement - tells how much money the company made and how it was spent in a given period of time.

2) Balance sheet - Gives a “snapshot” of where the company is financially.

3) Statement of cash flows- Breaks down the cash inflows and outflows into (3) categories 1)cash flows from operations 2) cash flows from investing 3) cash flows from financing

4) Statement of retained earnings- tells how much cash / equity the company

has on hand

Statement of cash flows Statement of cash flows • An overview:An overview:

• Sales - $150,000 (1000 units @ $150.00)Sales - $150,000 (1000 units @ $150.00)

• Cost of Goods sold - $100,000 (1000 units @ $100.00)Cost of Goods sold - $100,000 (1000 units @ $100.00)

• Gross Income - $50,000Gross Income - $50,000 ( 100,000 / 150,000) = 33% Gross profit margin( 100,000 / 150,000) = 33% Gross profit margin

• Sales, General & Administrative (SG&A)Sales, General & Administrative (SG&A)

• Salaries $20,000Salaries $20,000

• Rent $10,000Rent $10,000

• Utilities $5,000Utilities $5,000

• Supplies $ 3,000Supplies $ 3,000

• Net Income (Gross income - SG&A) = $12,000 Net Income (Gross income - SG&A) = $12,000

FYI- FYI-

• Cost of goods sold is usually the cost of Cost of goods sold is usually the cost of raw material in manufacturing and is a raw material in manufacturing and is a very high percentage of sales. It is usually very high percentage of sales. It is usually lower in service based organizations. lower in service based organizations.

• Income statements tell the reader a story Income statements tell the reader a story about the company for a given time. Its about the company for a given time. Its important to understand what each line in important to understand what each line in the statement means. the statement means.

Your project - Your project - • Start putting together estimates on your projects. This will require Start putting together estimates on your projects. This will require

some research. some research.

• Critical questions: Critical questions:

• 1) what will it cost to produce (1) unit of my good or service?1) what will it cost to produce (1) unit of my good or service?

• 2) How much can I sell (1) unit of my good and service? 2) How much can I sell (1) unit of my good and service?

• 3) What will be my costs? I.e do I need to rent an office or a 3) What will be my costs? I.e do I need to rent an office or a warehouse? warehouse?

• 4) Do I need to borrow money and if so how much? What are the 4) Do I need to borrow money and if so how much? What are the prevailing rates to borrow money in my community (call a bank / prevailing rates to borrow money in my community (call a bank / financial company if needed to get this information)financial company if needed to get this information)