How Accountants use Income Statements p . 266 exercises: 1, 2,5

1. How Accountants use Income Statementsp. 266 exercises: 1, 2,5 • We will explore different ways to extract meaningful information from our income statement and balance sheet.

2. Comparing Income Statements • When comparing income statements for two consecutives years here are two calculations for each item:

3. Comparing Income Statements • EXAMPLE Compared to: The calculation:_____________________

4. Comparing Income Statements • The last two columns can be very useful in analyzing any item on the income statement • In the last example they may look for a reason for the increased car expense. • _____________________________________________________ • Are A/R and sales also going up? • If not are the cars old and uneconomical? • _____________________________________________________

5. Trend Analysis • Shows financial data over a number of consecutive periods • It is not that easy to interpret these figures, so lets change them to percentages (or you could use a graph) • _______________________=

6. Graph

7. Compare Income Statements from two companies • Put the company information side by side on the income statement (see page 265 in textbook) • Turn the numbers into percentages by____________________________________ • This is called the “common-size” form • To make the calculation, put the dollar amount of the item over the dollar amount of sales and multiply by 100.