QUESTION 13 Moving on in this Chapter, next Read Section 3-3 The Income Statement. This statement informs the firm about their profitability over a period of time. Start by exploring the Income Statement in Table 3.2 of your Book. Put the following variables in order from the top(1) to the bottom(4) according to how they appear on the statement. Independently, it is important to know what these financial measures represent. Be sure to take time to learn the items on the Income Statement Net Income Bottom line "Earnings for the firm. Owners and shareholders are paid from this value and it connects to the statement of cash flows and statement of stockhodlers' equity Interest Expense- When a firm has borrowed, there are interest payments on their financed debt. This value is largely derived from long-term debt where the interest expense increases as a firm takes out more debt. It is also related to Notes Payable. Notice that this is subtracted before taxes are calculated, which is important to remember when we get to Chapter 10 (don't worry I will remind you of this observation in that chapter) Taxes- In this chapter, you will be given either the firm's tax rate, or the tax amount. Know how to use both methods Revenue- also called Sales- this is the top line of the income statement Depreciation Expense- or depreciation-this represents the expense of using equipment in terms of its decrease in value. For example, as I use a truck for my business, this will decrease the value of the truck over time (as I put on miles and it ages, etc). This expense is estimated in accounting Operating Expenses or Operating costs-Total Operating Expenses-this represent two combined items: the Cost of Goods Sold and Other Operating Expenses. This item is related to costs from the firm's operations EBIT- Earnings before Interest and Taxes, also called Operating Income. EBIT represents a firm's earnings from operations. This is an important variable that we will use a lot. Take a minute to make sure you know the three variables you need to find EBIT. QUESTION 14 Let's do some calculations. A firm has $6.251 in Net Sales and Total Operating Expenses (cost of goods sold and other operating expenses) are $1,003. Depreciation Expense is $524. Interest expense is $404 and the firm has a tax rate of 14.4%. Calculate the firm's EBIT Be mindful of what information is required to calculate this variable. Your answer should be in dollars ($200 or 200 are both acceptable formats) QUESTION 15 More Income Statement Practice A firm has 56,311 in Net Sales and Operating Expenses are $1,528. Depreciation Expense is $905. Interest expense is $448 and the firm has $626.1 in taxes. Calculate the firm's Net Income. Include a negative if appropriate 1. first find EBIT 2. next subtract Interest 3. then subtract taxes Your answer should be in dollars ($200 or 200 are both acceptable formats) QUESTION 16 More Income Statement Practice: how to deal with taxes A firm has $5,517 in Net Sales and Operating Expenses are $1,632. Depreciation Expense is $614. Interest expense is $285 and the firm has a 12.8% tax rate. Calculate the firm's Net Income. Include a negative if appropriate 1. first find EBIT 2. next subtract Interest 3. then subtract taxes, there are two wasy to do this 1. Find the tax amount in dollars (BT * T where T is a decimal) and then subtract it out: EBT - taxes 2. Or find taxes and subtract them in one step EBT*(1-T) where T is in decimal form Your answer should be in dollars ($200 or 200 are both acceptable formats) Do not round intermediate steps. Round the final answer only QUESTION 17 Using the equations in Sections 3-3, find the Earnings, Earnings per share, Dividends per share, and Book value per share using the following information: A firm has $146.3 million (S146,300,000) in Net Income and 75 million (75,000,000) common shares outstanding, $86.3 million ($86,300,000) in dividends to shareholders and $940 million ($940,000,000) in total common equity Notice how millions are converted in dollars. be sure you are comfortable converting millions into dollars and visa-versa Earnings A. $1.15 - v Earnings per share (EPS) B. $12.53 Lv Dividends per share C. 146.3 million Book Value per Share D. $1.95 QUESTION 13 Moving on in this Chapter, next Read Section 3-3 The Income Statement. This statement informs the firm about their profitability over a period of time. Start by exploring the Income Statement in Table 3.2 of your Book. Put the following variables in order from the top(1) to the bottom(4) according to how they appear on the statement. Independently, it is important to know what these financial measures represent. Be sure to take time to learn the items on the Income Statement Net Income Bottom line "Earnings for the firm. Owners and shareholders are paid from this value and it connects to the statement of cash flows and statement of stockhodlers' equity Interest Expense- When a firm has borrowed, there are interest payments on their financed debt. This value is largely derived from long-term debt where the interest expense increases as a firm takes out more debt. It is also related to Notes Payable. Notice that this is subtracted before taxes are calculated, which is important to remember when we get to Chapter 10 (don't worry I will remind you of this observation in that chapter) Taxes- In this chapter, you will be given either the firm's tax rate, or the tax amount. Know how to use both methods Revenue- also called Sales- this is the top line of the income statement Depreciation Expense- or depreciation-this represents the expense of using equipment in terms of its decrease in value. For example, as I use a truck for my business, this will decrease the value of the truck over time (as I put on miles and it ages, etc). This expense is estimated in accounting Operating Expenses or Operating costs-Total Operating Expenses-this represent two combined items: the Cost of Goods Sold and Other Operating Expenses. This item is related to costs from the firm's operations EBIT- Earnings before Interest and Taxes, also called Operating Income. EBIT represents a firm's earnings from operations. This is an important variable that we will use a lot. Take a minute to make sure you know the three variables you need to find EBIT. QUESTION 14 Let's do some calculations. A firm has $6.251 in Net Sales and Total Operating Expenses (cost of goods sold and other operating expenses) are $1,003. Depreciation Expense is $524. Interest expense is $404 and the firm has a tax rate of 14.4%. Calculate the firm's EBIT Be mindful of what information is required to calculate this variable. Your answer should be in dollars ($200 or 200 are both acceptable formats) QUESTION 15 More Income Statement Practice A firm has 56,311 in Net Sales and Operating Expenses are $1,528. Depreciation Expense is $905. Interest expense is $448 and the firm has $626.1 in taxes. Calculate the firm's Net Income. Include a negative if appropriate 1. first find EBIT 2. next subtract Interest 3. then subtract taxes Your answer should be in dollars ($200 or 200 are both acceptable formats) QUESTION 16 More Income Statement Practice: how to deal with taxes A firm has $5,517 in Net Sales and Operating Expenses are $1,632. Depreciation Expense is $614. Interest expense is $285 and the firm has a 12.8% tax rate. Calculate the firm's Net Income. Include a negative if appropriate 1. first find EBIT 2. next subtract Interest 3. then subtract taxes, there are two wasy to do this 1. Find the tax amount in dollars (BT * T where T is a decimal) and then subtract it out: EBT - taxes 2. Or find taxes and subtract them in one step EBT*(1-T) where T is in decimal form Your answer should be in dollars ($200 or 200 are both acceptable formats) Do not round intermediate steps. Round the final answer only QUESTION 17 Using the equations in Sections 3-3, find the Earnings, Earnings per share, Dividends per share, and Book value per share using the following information: A firm has $146.3 million (S146,300,000) in Net Income and 75 million (75,000,000) common shares outstanding, $86.3 million ($86,300,000) in dividends to shareholders and $940 million ($940,000,000) in total common equity Notice how millions are converted in dollars. be sure you are comfortable converting millions into dollars and visa-versa Earnings A. $1.15 - v Earnings per share (EPS) B. $12.53 Lv Dividends per share C. 146.3 million Book Value per Share D. $1.95