Income Statement Analysis
The discussion questions for Weeks 2 – 4 are designed to help teach you to derive meaning from financial statements. Each week you will select a line item and use Variance Trend Analysis and Ratio Analysis to make some initial assessments about how the company is performing. Collectively, as a class we will seek to find the “story behind the numbers.” Let’s start applying what you have learned to a real-life Income Statement .
1. Locate and post a screenshot of an actual Income Statement from the company’s latest annual report (which can be found in the investor relations section of website) for one of the following companies:
· Royal Caribbean Group
· Nike
· Boeing
2. Pick an Income Statement Line Item and a Ratio from the list below:
Line Item
Ratio
·
·
· Revenue (aka Sales, Turnover)
· Cost of Goods Sold/Cost of Sales
· Selling, General and Administrative Expense
· Gross Profit
· Operating Profit
· Net Profit
·
·
· Gross Margin (%)
· Net Margin (%)
· Return on Sales
· Return on Equity
· Return on Assets
· Earnings Per Share (EPS)
· EBITDA
3. What do this line item and ratio measure and why is it important item for Management to understand thesenumbers?
4. Identify the past 4 years of amounts for your line item and ratio ( Note: this will require you to track down additional historical Income Statements to get the older data). Share this data with the class using a data table or chart.
5. Answer the following questions:
. What are the trends for this line item and ratio?
. Have the line item and ratio amounts increased or decreased?
. Is this a “good” thing or a “bad” thing? For this company?
. What might management do to improve this line item and ratio?
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