MULTIPLE STEP INCOME STATEMENTS

A multi-step income statement gets its name from a series of steps.

whose costs and expenses are deducted from income. As a first step, the cost of
the goods sold are deducted from net sales to determine the subtotal of
gross profit. As a second step, operating expenses are deducted to obtain a
subtotal llawindowoperating utility” (or utility of operations). As a final step, it
consider the expense of income tax and other "non-operational" lines for
to arrive at thenet utility.
Note that the income statement is divided into four main sections:
Income
Cost of goods sold
3. Operating expenses
4. Non-operational lines
Multi-step income statements are characterized by their numerous
sections and by the development of significant subtotals.
THE REVENUE SECTION: In a marketing company, section of
income from the income statement generally contains only one line, called
Sales. (Other types of income, if any, appear in the final section of the statements).
Investors and managers are very interested in the sales trend.
netas. A way to evaluate this trend is to frequently calculate the change
percentage of net sales from one year to the next. A percentage change is the value
of the change in a financial measurement, expressed as a percentage; it is calculated
dividing the value of the increase or decrease by the value of the measure before
of the change occurring. (Changes cannot be expressed as percentages if the
the value of the financial statement balances in the previous period is zero or has
changed from a negative sum to a positive one.
SECTION OF COST OF GOODS SOLD: The second section of
The income statement of a trading company shows the cost of goods.
sold during the period. The cost of goods sold generally appears
as a single value, which includes incidental items such as freight and losses
due to normal decreases.
GROSS PROFIT: A KEY SUBTOTAL. In a profit and loss statement of
multiple steps, the gross profit appears as a subtotal. This makes it easier for the
users of the income statements the calculation of the gross profit margin of the
company (gross profit margin).
The gross profit margin is the gross profit expressed as a percentage of sales.
rubbing
When evaluating the gross profit margin of a particular company, the analysis must
consider the rates obtained in previous periods and also the rates obtained by
other companies in the same industry. For most companies
Distributors, gross profit margins generally range between 20% and
50%, depending on the type of product sold. Mugs generally result in
high turnover goods, such as food products, and tall cups are found in
branded and innovative products.
Under normal conditions, a company's gross profit margin tends to
remain reasonably stable from one period to the next. The changes
Significants in this cup can provide investors with an indication.
early response to a changing consumer demand for the company's products.
OPERATING EXPENSES SECTION: operating expenses are incurred with the
end of generating income. Frequently, expenses are subdivided into classifications
of selling expenses and general and administrative expenses. The breakdown of expenses
operational classification helps management and other users of the
financial statements to separately evaluate different aspects of the operations of the
company. For example, selling expenses often increase and decrease in
direct form with the changes in net sales. On the other hand, expenses
administrative staff generally remain constant from one period to the next.
OPERATIONAL UTILITY: ANOTHER KEY SUBTOTAL: Part of the income and
business expenses come from activities different from business operations
basics of the company. Common examples include the interest earned on
investments and income tax expenditure.
Operating income (or income from operations) shows the
relationships between the income obtained from clients and the expenses incurred
to generate these revenues. Indeed, the operating profit mgo thereprofitabilityof
the basic business operations of a company and "leaves out" other types of
income and expenses.
NON-OPERATIONAL LINES: The income and expenses that are not
directly related to the main activities of the businesses of the
company, are listed in a final section of the income statements after
determine the operating profit.
Two significant 'non-operational lines' are interest expenses coming from the
the way in which assets are financed, not the way in which they are used
these assets in the business operations. The income tax expense is not
included in operating expenses because the payment of these taxes does not help to
generate income. Non-operational income, such as interest and dividends
obtained from investments, are also related in this final section of the statement of
results.
NET INCOME: Most equity investors consider the
net profit (or net loss) as the most important figures in the statement of
results. The value represents a global increase (or decrease) in equity of
the owners, resulting from the business activities during the period.
Frequently, financial analysts calculate net income as a percentage of
net sales (net profit divided by net sales). This measure provides
an indicator of management's ability to control expenses and to retain a
reasonable portion of your income as profit.
The 'normal' rate of net profit varies quite a bit by industry. In some
industries, one can succeed if a profit of 2% or 3% is obtained from the
net sales. In other industries, net profit can reach around 20% or 25%
from the net sales profit.
EARNINGS PER SHARE: The evidence of ownership of a company is
consisting of capital shares. What does the net profit of a company mean for
someone who possesses, for example, 100 shares of a company's capital? To help with
individual shareholders to relate the net income of the company with ownership
of their actions, large companies calculate earnings per share and show
these values at the end of their edited results.
In simpler terms, earnings per share is net income, expressed in
terms of action.
ESTADO DE RETAINED EARNINGS(annex 3)
The termretained earningsifrefers to the portion of shareholders' equity
derivative of profitable operations. Retained earnings increase through
obtaining net profits and reducing them when incurring net losses and through the
dividend declaration.
In addition to thebalance sheet, athe income statement and the cash flow statement, a
The complete set of financial statements includes a 'statement of retained earnings.'
ADJUSTMENT OF PRIOR PERIOD: Occasionally a company may discover
that a material error was made in the measurement of net income in a previous year.
Since net income is closed to the retained earnings account, an error in the
reported net income will cause an error in the value of retained earnings that
appears in all the following balance sheets. When such errors come to light,
they must be corrected. The correction, called 'previous period adjustment', is
shows in the retained earnings as an adjustment to the balance of earnings
retenidas a principios del año actual. El valor del ajuste se muestra neto de cualquier
income tax effect.
Adjustments from the previous period rarely appear in the financial statements of the
large publicly traded corporations. The financial statements of these companies are
audited annually by auditors and it is not likely to contain material errors
that may later require correction due to adjustments for previous periods. It is
much more likely that such adjustments will appear in the financial statements of those
companies not required to be audited.
INCOME STATEMENT (Outline)
SALES

Returns and Discounts

OPERATIONAL INCOME

Cost of sales

GROSS OPERATING PROFIT

(-) Selling operational expenses

(-) Operating administration expenses

OPERATIONAL UTILITY

Non-operating income

(-) Non-operational expenses

NET INCOME BEFORE TAXES

(-) Income tax and complementary taxes

LIQUID UTILITY

(-) Reservations

USEFULNESS OF EXERCISE