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Entrepreneurship

Entrepreneurship . Chapter 7 Using an Income Statement to Guide a Business. Entrepreneurs Use 3 Financial Statements. Income statement Cash flow statement Balance sheet Data for the financial statements comes from the accounting journal.

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Entrepreneurship

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  1. Entrepreneurship Chapter 7 Using an Income Statement to Guide a Business Mariotti: Entrepreneurship

  2. Entrepreneurs Use 3 Financial Statements • Income statement • Cash flow statement • Balance sheet • Data for the financial statements comes from the accounting journal. • The statements show the health of the business at a glance. Marriotti: Entrepreneurship

  3. Income Statement: Scorecard for the Entrepreneur • Prepared monthly and at end of fiscal year • Also called “profit and loss statement” • Shows whether or not business is making a profit • Profit is entrepreneur’s reward for adding value to scarce resources Marriotti: Entrepreneurship

  4. 8 Parts of the Income Statement • Revenue • Cost of Goods Sold (COGS) • Other Variable Costs • Contribution Margin (a.k.a. Gross Profit) • Fixed Operating Costs (USAIIRD) • Pre-Tax Profit • Taxes • Net Profit/(Loss) Marriotti: Entrepreneurship

  5. Income Statement Marriotti: Entrepreneurship

  6. A Simple Income Statement Marriotti: Entrepreneurship

  7. Return on Investment (ROI) • You “invest” time, energy or money into something because you expect a “return” of money or satisfaction. • Return on investment (ROI) measures return as a percentage of the original investment. Net Profit/Investment X 100 = ROI% What you made over what you paid, times 100. Marriotti: Entrepreneurship

  8. To Calculate ROI for a Business, You Need 3 Things: • Net Profit: found on bottom line of the income statement. • Investment: all money used to start the business (Start-Up Investment) plus additional money invested later. • The period of time for which you are calculating ROI (typically one month or one year). Marriotti: Entrepreneurship

  9. Income Statement for a More Complex Business Marriotti: Entrepreneurship

  10. Use Financial Ratios to Analyze an Income Statement • Express each line of the income statement as a percentage by dividing sales into it and multiplying by 100. • This makes it easy to see how each item is affecting the business’s profit. • Net Income/Sales is called Return On Sales (ROS) • Fixed Operating Costs/Sales is called Operating Ratio INSERT FIG FROM BOTTOM OF PG 189 Marriotti: Entrepreneurship

  11. Same Size Analysis: Used to Compare Income Statements Marriotti: Entrepreneurship

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