iVentures Investments
INCOME STATEMENT DESCRIPTIONS (PROVIDED BY SL CAPEX)

REVENUE

Revenue is a business term for the amount of money that a company receives from its activities in a given period, mostly from sales of products and/or services to customers. It is not to be confused with the terms "profits" or "net income" which generally mean total revenue minus total expenses in a given period. Revenue is basically "price x quantity" (the price for one, times the number of them, or the price per kg times the mass in kg, etc.), summed over all goods; if the price per unit varies with the quantity then for each price per unit this multiplication is done, and the results are summed. Net revenue (revenue – returns) is used when sales returns are a factor in the business.

COST OF SALES (OR COST OF GOODS SOLD) COGS

In accounting, the cost of goods sold (abbreviated COGS; also, cost of sales or cost of revenue) describes the direct expenses incurred in producing a particular good for sale, including the actual cost of materials that comprise the good, and direct labor expense in putting the good in saleable condition. COGS does not include indirect expenses such as office expenses, accounting, shipping department, advertising, and other expenses that can not be attributed to a particular item for sale. Subtracting the cost of goods sold from the amount billed when selling the good (sales revenue) produces the gross profit on the good. The net profit, what most people understand as the business' income or profit, is determined by subtracting the cost of goods sold and the indirect expenses from the sales revenue.

GROSS PROFIT (LOSS)

Gross profit or sales profit or gross operating profit is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. In general, it is the profit shown on a transaction if one disregards the indirect costs. It is the revenue that remains once one deducts the costs that arise only from the generation of that revenue.

For a retailer, gross profit is the shop takings less the cost of the goods sold. For a manufacturer, the direct costs are the costs of the materials and other consumables used to make the product. For example, the cost of electricity to operate a machine is often a direct cost while the cost of lighting the machine room is an overhead.

Payroll costs may also be direct if the workforce is paid a unit cost per manufactured item. For this reason, service industries that sell their services by time units often treat the fee-earners' time cost as a direct cost. Gross profit is an important guide to profitability but many small businesses fail because they overlook the regular demand to meet the fixed costs of the business. The indirect costs are considered when calculating net income, another important guide to profitability.

GROSS MARGIN (%)

Gross margin is an ambiguous phrase that expresses the relationship between gross profit and sales revenue. The ambiguity arises because it can be expressed in absolute terms: Or as the ratio of gross profit to sales revenue, usually in the form of a percentage: In everyday speech the word 'percentage' is sometimes omitted and this can create confusion.

Note: "Cost of goods sold" are the costs directly linked to the product, variable costs, e.g. costs for material and labour. They do not include fixed costs like office expenses etc. The gross margin shall be covering fixed costs and possibly a (net-) profit. Higher gross margins for a manufacturer reflect greater efficiency in turning raw materials into income. For a retailer it will be their markup over wholesale. Larger gross margins are generally good for companies, with the exception of discount retailers. They need to show that operations efficiency and financing allows them to operate with tiny margins

OPERATING EXPENSES

Operating expenses or OPEX are the day-to-day expenses incurred in running a business, such as sales and administration, or research & development, as opposed to Production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process.

RESEARCH & DEVELOPMENT

Investigative activities that a business chooses to conduct with the intention of making a discovery that can either lead to the development of new products or procedures, or to improvement of existing products or procedures. Research and development is one of the means by which business can experience future growth by developing new products or processes to improve and expand their operations.

While R&D is often thought of as synonymous with high-tech firms that are on the cutting edge of new technology, many established consumer goods companies spend large sums of money on improving old products. For example, Gillette spends quite a bit on R&D each year in ongoing attempts to design a more effective shaver. On average, most companies spend only a small percentage of their revenue on R&D (usually under 5%).

OPERATING INCOME OR LOSS

In financial and business accounting, earnings before interest and taxes (EBIT) is a measure of a firm's profitability that excludes interest and income tax expenses.

[1] EBIT = Operating Revenue – Operating Expenses + Non-operating Income Operating Income = Operating Revenue – Operating Expenses

[2] Operating income is the difference between operating revenues and operating expenses, but it is also sometimes used as a synonym for EBIT and operating profit.

[3] This is true if the firm has no nonoperating income. A professional investor contemplating a change to the capital structure of a firm (e.g., through a leveraged buyout) first evaluates a firm's fundamental earnings potential (reflected by EBITDA and EBIT), and then determines the optimal use of debt vs. equity. To calculate EBIT, expenses (e.g., the cost of goods sold, selling and administrative expenses) are subtracted from revenues.

[4] Profit is later obtained by subtracting interest and taxes from the result.

OPERATING MARGIN (%)

In business, operating margin is the ratio of operating income (operating profit in the UK) divided by net sales, usually presented in percent.

EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, ADJUST (EBITDA)

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability. EBITDA = Operating Revenue – Operating Expenses + Other Revenue Its name comes from the fact that Operating Expenses do not include interest, taxes, depreciation or amortization. EBITDA is not a defined measure according to Generally Accepted Accounting Principles (GAAP), and thus can be calculated however a company wishes. It is also not a measure of cash flow.

EBITDA differs from the operating cash flow in a cash flow statement primarily by excluding payments for taxes or interest as well as changes in working capital. EBITDA also differs from free cash flow because it excludes cash requirements for replacing capital assets (capex). EBITDA is used when evaluating a company's ability to earn a profit, and it is often used in stock analysis.

Operating income before depreciation and amortization (OIBDA) is a similar measure of operating cash flow.[citation needed] Although there are different points of view regarding the use of this metric by equity owners, most agree to its validity when used by debtholders, or to evaluate a business's ability to handle debt

LESS INTEREST EXPENSE

Interest expense relates to the cost of borrowing money. It is the price that a lender charges a borrower for the use of the lender's money. Interest expense is different form OPEX and CAPEX, for it relates to the capital structure of a company. Interest expense is usually tax-deductible.

LESS ASSET DEPRECIATION (NET FROM BALANCE SHEET)

Depreciation: Depreciation is usually included in operating expenses and/or cost of goods sold, but it is worthy of special mention due to its unusual nature. Depreciation results when a company purchases a fixed asset and expenses it over the entire period of its planned use, not just in the year purchased. The IRS requires certain depreciation schedules to be followed for tax reasons.

Depreciation is a noncash expense in that the cash flows out when the asset is purchased, but the cost is taken over a period of years depending on the type of asset. Whether depreciation is included in cost of goods sold or in operating expenses depends on the type of asset being depreciated. Depreciation is listed with cost of goods sold if the expense associated with the fixed asset is used in the direct production of inventory. Examples include the purchase of production equipment and machinery or a building that houses a production plant. Depreciation is listed with operating expenses if the cost is associated with fixed assets used for selling, general or administrative purposes. Examples include vehicles for salespeople or an office computer and phone system.

LESS COSTS FOR DISCONTINUED OPERATIONS

Discontinued Operations Operations of a business that have been sold, abandoned, or otherwise disposed of. Accounting regulations require that continuing operations be reported separately in the income statement from discontinued operations, and that any gain or loss from the disposal of a segment (an entity whose activities represent a separate major line of business or class of customer) be reported along with the operating results of the discontinued segment.

LESS ASSET IMPAIRMENT

Impairment: An asset is impaired when its carrying amount exceeds its recoverable amount. Carrying amount: the amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses Recoverable amount: The higher of an asset's fair value less costs to sell (sometimes called net selling price) and its value in use:

Fair value: The amount obtainable from the sale of an asset in a bargained transaction between knowledgeable, willing parties.

Value in use: The discounted present value of estimated future cash flows expected to arise from: the continuing use of an asset, and from its disposal at the end of its useful life.

Identifying an Asset That May Be Impaired At each balance sheet date, review all assets to look for any indication that an asset may be impaired (its carrying amount may be in excess of the greater of its net selling price and its value in use).

IAS 36 has a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then you must calculate the asset’s recoverable amount.

[IAS 36.9] The recoverable amounts of the following types of intangible assets should be measured annually whether or not there is any indication that it may be impaired. In some cases, the most recent detailed calculation of recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period: [IAS 36.10] an intangible asset with an indefinite useful life. an intangible asset not yet available for use. goodwill acquired in a business combination.

LESS EFFECT OF ACCOUNTING CHANGES

Cumulative Effect of a Change in Accounting Principle Income statement account reflecting the Net of Tax effect of switching from one principle to another. Cumulative effect equals the difference between the actual retained earnings reported at the beginning of the year using the old method and the retained earnings that would have been reported at the beginning of the year if the new method had been used in prior years.

Assume in 2005 a company goes from straightline depreciation to sum-of-the-years'-digits depreciation. In 2005, the new method is used to determine depreciation expense. However, the cumulative on prior years of the difference between straight-line (e.g., $50) and sum-of-the-years'-digits (e.g., $65) must be noted. The difference is charged to the cumulative effect account. The entry is to debit cumulative effect $15 and credit accumulated depreciation $15.

LESS DISBURSEMENT TO PREFERRED STOCK SHAREHOLDERS

Preferred Stock Preferred stock doesn't offer the same potential for profit as common stock, but it's a more stable investment vehicle because it guarantees a regular dividend that isn't directly tied to the market like the price of common stock. This type of stock guarantees dividends, which common stock does not. The price of preferred stock is tied to interest rate levels, and tends to go down if interest rates go up and to increase if interest rates fall. The other advantage of preferred stock is that preferred stockholders get priority when it comes to the payment of dividends. In the event of a company's liquidation, preferred stockholders get paid before those who own common stock.

In addition, if a company goes bankrupt, preferred stockholders enjoy priority distribution of the company's assets, while holders of common stock don't receive corporate assets unless all preferred stockholders have been compensated (bond investors take priority over both common and preferred stockholders). Like common stock, preferred stock represents ownership in a company. However, owners of preferred stock do not get voting rights in the business. The different types of preferred stock include: Participating preferred stock, which entitles holders to dividend increases if, during a given year, common stock dividends exceed those of preferred stock dividends.

Adjustable-rate preferred stock, which is tied to Treasury bill or other rates. The dividend is augmented based on the shifts in interest rates, determined by an established formula. Convertible preferred stock, which has a conversion price named at its issuance so that it can be converted to a company's common stock at the set rate. Straight or fixed-rate perpetual stocks, which have no maturity date because the dividend rate is set for the life of the issue. Companies that undergo multiple rounds of financing may issue multiple classes of preferred stock. In these situations, each stock class is granted its own set of rights, per its round of financing (for example, "Group I Preferred," "Group II Preferred," and so on).

Typically, preferred stock is favored by private companies, which often want to separate stockholders' economic interest in the company from the actual governance of the business. Another reason that preferred stock is primarily a tool of private companies is that stock exchanges and governing bodies tend to frown upon companies issuing preferred shares that can be publicly traded. Issuing stock to shareholders, even in a very small corporation, is a complicated process. Consult this checklist to ensure that you don't miss any critical steps.

LESS DIVIDEND TO COMMON STOCK SHAREHOLDERS

Common Stock The holders of common stock can reap two main benefits from the issuing company: capital appreciation and dividends. Capital appreciation occurs when a stock's value increases over the amount initially paid for it. The stockholder makes a profit when he or she sells the stock at its current market value after capital appreciation. Dividends, which are taxable payments, are paid to a company's shareholders from its retained or current earnings.

Typically, dividends are paid out to stockholders on a quarterly basis. These payments are usually made in the form of cash, but other property or stock can also be given as dividends. Payment of dividends, however, hinges on a company's capacity to grow ? or at least maintain ? its current or retained earnings. This means that ongoing payment of dividends cannot be guaranteed. Common stock ownership has the additional benefit of enabling its holders to vote on company issues and in the elections of the organization's leadership team. Usually, one share of common stock equates to one vote.

RETAINED EARNINGS

Retained Earnings The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet. Calculated by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders: Also known as the "retention ratio" or "retained surplus".

In most cases, companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development. Should a net loss be greater than beginning retained earnings, retained earnings can become negative, creating a deficit.