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The Corporate Finance Institute Accounting
What is its use in financial modeling?
This statement is a great place to begin the financial model, as it
requires the least amount of information from the balance sheet
and cash flow statement. Thus, in terms of information, the income
statement is a predecessor to the other two core statements.
How to set up the income statement?
The income statement may have minor variations between different
companies, as expenses and income will be dependent on the type of
operations or business conducted. However, there are several generic
line items that are commonly seen in the income statement.
Sales Revenue
The company’s revenue from sales or service is displayed at the very
top of the statement. This value will be gross of the costs associated in
creating the goods sold, or in providing the service.
Cost of Goods Sold (COGS)
This line item aggregates the direct costs associated with achieving the
revenue. Fixed costs and overhead are excluded.
Gross Profit
Gross profit is found by subtracting COGS from Sales Revenue.
SG&A Expenses
The selling, general and administrative section will contain all other
indirect costs associated with running the business. This includes
salaries of management, advertising expenses, travel expenses, and
sometimes depreciation and amortization, among others. Entities
may, however, elect to place depreciation and amortization in its own
section.
EBITDA
While not present in all income statements, Earnings before Interest,
Tax, Depreciation and Amortization is found by subtracting SG&A
expenses (excl. amortization and depreciation) from gross profit.
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