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The income statement, also known as the profit and loss ( P&L ) statement, provides a snapshot of the financial performance of a company during
The income statement, also known as the profit and loss P&L statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firms gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders.
The income statement is prepared using the generally accepted accounting principles GAAP that match the firms revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the companys financial performance and condition.
Consider the following scenario:
Blue Hamster Manufacturing Inc.s income statement reports data for its first year of operation. The firms CEO would like sales to increase by next year.
Blue Hamster is able to achieve this level of increased sales, but its interest costs increase from to of earnings before interest and taxes EBIT
The companys operating costs excluding depreciation and amortization remain at of net sales, and its depreciation and amortization expenses remain constant from year to year.
The companys tax rate remains constant at of its pretax income or earnings before taxes EBT
In Year Blue Hamster expects to pay $ and $ of preferred and common stock dividends, respectively.
Complete the Year income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.
Blue Hamster Manufacturing Inc.
Income Statement for Year Ending December
Year Year Forecasted
Net sales $
Less: Operating costs, except depreciation and amortization
Less: Depreciation and amortization expenses
Operating income or EBIT $
Less: Interest expense
Pretax income or EBT
Less: Taxes
Earnings after taxes $
Less: Preferred stock dividends
Earnings available to common shareholders
Less: Common stock dividends
Contribution to retained earnings $ $
Given the results of the previous income statement calculations, complete the following statements:
In Year if Blue Hamster has shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends.
If Blue Hamster has shares of common stock issued and outstanding, then the firms earnings per share EPS is expected to change from in Year to in Year
Blue Hamsters earnings before interest, taxes, depreciation and amortization EBITDA value changed from in Year to in Year
It is to say that Blue Hamsters net inflows and outflows of cash at the end of Years and are equal to the companys annual contribution to retained earnings, $ and $ respectively. This is because of the items reported in the income statement involve payments and receipts of cash.
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