Analyzing an Income Statement Discussion and reply to Quentins discussion

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Income statements are presented in the table below for the Elf Corporation for the years ending December 31, 2010, 2009, and 2008. Write a one-paragraph analysis of Elf Corporation’s profit performance for the period. Create a common-sized income statement for the three years. What conclusions can you draw from the different parts of the statement? What are the causes and effects of Elf's performance for those three years?

Elf Corporation Income Statements for the Years Ending December 31

(in millions)	2010	2009	2008
Sales	$700	$650	$550
Cost of goods sold	350	325	275
Gross profit	350	325	275
Operating Expenses:
Administrative	100	100	100
Advertising and marketing	50	75	75
Operating profit	$200	$150	$100
Interest expense	70	50	30
Earnings before tax	$130	$100	$ 70
Tax expense (50%)	65	50	35
Net income	$ 65	$ 50	$ 35

Quentins Discussion please reply :

The Elf corporation has experienced several changes in regards to their profit performance for the past three years. The revenue section overall experienced growth as calculated in millions. Sales continued to rise each year, along with gross profit. As far as the expenses section, cost of goods sold increased, along with various operating expenses, including operating profit, interest expenses, earnings before tax, and tax expenses. Administrative expenses remained the same for each year and advertising and marketing expenses stayed the same for 2008 and 2009 and decreased in 2010. The net income, ultimately, increased by $15 million each consecutive year.

Elf Corporation Common-Sized Income Statement

(in millions)	2010	2009	2008	2010	2009	2008
Sales	700	650	550	100%	100%	100%
COGS	350	325	275	50%	50%	50%
Gross Profit	350	325	275	50%	50%	50%
Operating Expenses:
Administrative	100	100	100	14%	15%	18%
Advertising/Mktg	50	75	75	7%	12%	14%
Operating Profit	200	150	100	29%	23%	18%
Interest Expense	70	50	30	10%	8%	5%
Earnings before tax	130	100	70	19%	15%	13%
Tax Expense (50%)	65	50	35	9%	8%	6%
Net Income	65	50	35	9%	8%	6%

What conclusions can you draw from the different parts of the statement?

There was upward succession of revenue and gross profit, however the percentages remained the same for all three years. Operating Profit, Interest Expense, Earnings before tax, and Tax Expense (50%) all increased in percentages, while administrative and advertising expenses decreased.

What are the causes and effects of Elf's performance for those three years?

The cost of goods sold increased as the revenue increased and remained at 50% of the sales. As the overall expenses increased, the net income still yielded some increase in those three years.