Income Statement: Finance Tool that Managers Look at Most

Managers in a sample of managers at companies with at least 150 employees took a simple financial literacy quiz and got an average of 38% of the questions right.  How is that possible?  There are varying reasons, but none of them are good.  For those who have had limited exposure, or just a plain aversion to "the numbers", there is hope for becoming financially intelligent and increasing your credibility by speaking the language of business. This involves knowing the foundation of financials – getting back to basics.

This is part one of a four part Back to Basics in Corporate Finance series. This module focuses on the finance tool that managers look at the most when analyzing a company’s numbers – the income statement. You may have heard other names used for this statement, such as the statement of operations, consolidated statement of operations, profit & loss (P&L) statement, and statement of earnings.  Don’t let all the jargon confuse or intimidate you.  Get to know the terms and elements of this statement, step by step, and how you can affect the bottom line.  Discover where to look for assumptions and estimates, and how a company measures revenue and expenses.  Calculate key ratios to learn more about a business and whether it’s growing or shrinking its worth.

Discussions include:

• All the financial jargon and terminology used to say virtually the same thing.

• How to analyze revenue growth and recognition using real company numbers.

• How finance professionals use the matching principle to estimate profit.

• The difference between EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation, and amortization).

• Why Warren Buffet believes cash is king.

When you know how to read an income statement, you will understand the story the financials are telling you.  This training is filled with entertaining stories about real companies, and their cautionary tales of why they failed or succeeded.