Question: Income Statement
Referencing this week's readings and lecture, address the following:
- What are the two causes of an increasing or decreasing sales number?
- Discuss all the reasons that might explain an increase or decrease in gross profit.
Analyzing an Income Statement
Income statements are presented in the table below for the Elf Corporation for the years ending December 31, 2010, 2009, and 2008. Write a one-paragraph analysis of Elf Corporation's profit performance for the period. Create a common-sized income statement for the three years. What conclusions can you draw from the different parts of the statement? What are the causes and effects of Elf's performance for those three years?
Elf Corporation Income Statements for the Years Ending December 31
|
(in millions)
|
2010
|
2009
|
2008
|
|
Sales
|
$700
|
$650
|
$550
|
|
Cost of goods sold
|
350
|
325
|
275
|
|
Gross profit
|
350
|
325
|
275
|
|
Operating Expenses:
|
|
|
|
|
Administrative
|
100
|
100
|
100
|
|
Advertising and marketing
|
50
|
75
|
75
|
|
Operating profit
|
$200
|
$150
|
$100
|
|
Interest expense
|
70
|
50
|
30
|
|
Earnings before tax
|
$130
|
$100
|
$ 70
|
|
Tax expense (50%)
|
65
|
50
|
35
|
|
Net income
|
$ 65
|
$ 50
|
$ 35
|