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income tax expense
— estimated taxes that will be paid
income from continuing operations
— operating income after taxes and interest are paid
non-recurring events
— write offs that are unusual and do not normally occur
net income
— also known as
net profit
or
net earnings
, net income is revenue less expenses,
that is the “bottom line” of a company. The accounting equation is:
(Net income = Revenue –
Expenses)
Look carefully at the formulas that are used to calculate the values on the income statement using the
financial information on Google Inc. for 2013 (reference on the companion website). You can verify the
calculations with simple addition and subtraction.
Google Inc
.
(all numbers in thousands)
Dec-13
Formula
Total Revenue
$ 59,825,000
Cost of Goods Sold
$ 25,858,000
Gross Profit
$ 33,967,000
= (Total Revenue) – (COGS)
Operating Expenses
Research and Development $ 7,952,000
Selling General and Administrative $ 12,049,000
Non-Recurring
-
Operating Income
$ 13,966,000
= (Gross Profit) – (Research and
Development) – (SG&A) – (Non-Recurring)
Income from Continuing Operations
Total other income $ 530,000
Earnings before interest and taxes
$ 14,496,000
= (Operating Income) + (Other Income)
Interest Expense
-
Income before tax
$ 14,496,000
= (Earnings before interest and taxes) –
(Interest Expense)
Income tax expense $ 2,282,000
Minority interest
-
Net Income from Continuing
Operations
$ 12,214,000
= (Income before tax) – (Income tax
expense) + (Minority interest)
Non-recurring Events
Discontinued operations
$ 706,000
Net Income
$ 12,920,000
= (Net Income from Continuing Operations)
+ (Discontinued Operations)
8.5 Corporate Finance