Income Statements (23.2)
Chapter 21 - Income Statements
Lesson Objective: To understand the different uses of an Income Statement
The Income Statement is a financial report that records the business' revenue, costs and expenses, and profits. It is usually released once a year for the analysis of internal and external stakeholders:
Income Statement vs. Cash Flow Forecast
The purpose of the Income Statement is to show how much profit a business made at a period of time;
On the other hand, Cash Flow Forecasts have the purpose of projecting how much cash the business will generate (inflows) and spend (outflows).
Which one should you use?
It depends on what you want to analyze:
Income Statements are good statements for analyzing profitability and therefore are used for profit/loss decisions;
Cash Flow Forecasts are focused on providing information on liquidity and solvency of the business and therefore are used for financing decisions.
The Income Statement / Statement of Profit or Loss is Used For:
Assess business performance overtime and against competitors;
To visualize if costs and/or expenses are too high and take corrective measures;
To make decisions about products (continue/discontinue) and pricing;
To calculate GPM and NPM (Ch. 25);
Business in Action - Alibaba
To-Do-List:
Chapter 23 - Income Statements
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