The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our financial modeling training program. In the following video, we cover the basics of the financial income statement using a sample from Cisco Systems.
Video Transcript/Summary: The strategies and tips provided within this video module include:
- Using Cisco as an example, Net Sales (Revenue) is an accumulation of Product and Services sales.
- Cost of Sales is divided as per individual categories for Cisco, such as cost of software, manufacturing etc. Revenue/Cost of Sales for Cisco is approximately 3:1, similar to the Revenue/Cost of Services.
- Subtracting the Total Cost of Sales from the Total Sales gives you the Gross Profit (Cisco refers to this Gross Profit as Gross Margin).
- The Gross Profit is further broken down as a % of Revenue, Products and Services.
- Operating Expenses for Cisco include research and development, sales and marketing, general and administrative (G&A), amortisation and in-process research and development.
- Subtracting the Total Operating Expenses from the Gross Margin, gives the Total Operating Income. By further dividing this figure into Revenue, we get the Operating Margin.
- There will be a line item for interest arising from the company taking on debt. Other operating income might refer to a strategic positioning for potential M&A targets or other strategic options.
- Net income is reached once taxes are accounted for and subtracted. Net Income divided by the total number of shares outstanding gives the Net Income per share, more commonly known as the Earnings per share (EPS).
- It is advisable to use the diluted, rather than basic number of shares outstanding as this takes into account things like options, which at this point might have been granted and are likely to be exercised.
I hope that this step-by-step tutorial of the financial income statement was useful to you.
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