Finance

Income Statement Analysis

This week’s DQ focuses on the Income Statement. It builds on the insights we gained in Week 2, but goes a little deeper in our use of financial statement analysis skills.

1. Locate and post a screen shot of an actual Income Statement from the latest fiscal year for one of the following companies:
   • Sears (Note: use this link Sears Holding Corp 10-K )
   • Tesla
2. Pick an Income Statement Line Item or Ratio from the list below:

Line Item

Revenue (aka Sales, Turnover)

Cost of Goods Sold/Cost of Sales

Salary Expense

Selling, General and Administrative Expense

Gross Profit

Operating Profit

Net Profit

Ratio

• Gross Margin (%)
• Net Margin (%)
• Salary Expense as % of Sales
• Return on Sales
• Return on Equity
• Return on Assets
• Earnings Per Share (EPS)
• EBITDA

1. What does this line item or ratio measure and why is it an important item for Management to understand this number?
2. Identify the past 4 years of amounts for your line item or ratio (Note: this will require you to track down additional historical Income Statements to get the older data). Share this data with the class using a data table or chart.
3. Answer the following questions:
   • a. What is the trend for this line item or ratio?
   • b. Has the line item or ratio amount increased or decreased?
   • c. Is this a “good” thing or a “bad” thing? For this company?
   • d. What might management do to improve this line item or ratio?