Income Statement Tutorial! – Reading an Income Statement!

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Good day subscribers thank you so much for joining me today i am jeremy this is the financial education channel and today we’re talking about income statement what is it any kind of statement on your screen today i’m going to put up an income statement and i’m going to go through the line with line with you guys on what each category means in the income statement

And put it in the easiest way possible so you can remember when you look at an income statement in the future exactly what that line category means i’m also going to share with you guys what’s the most important things on the income statement and you know before i get into the video i just want to share with you guys income statement is vital because every single

Person whoever is thinking about investing a stock you need to know what an income statement is every person who’s ever thinking about starting a business you need to know what an income statement is you need to know what each category on an income statement is it is extremely extremely vital there’s no way around it you have to know so i just want to share that

With you guys and let’s go ahead and get into this so on your screen now i should be showing you an income statement for apple apple corporation apples an awesome company to do this on because everybody knows apple you know if you don’t own a product of it you probably know somebody that owns an apple product so the first few things you’re going to recognize here

To see up there at the top it says income statement you’re going to notice that there’s three years here there’s 2013 there’s 2014 there’s 2015 so there’s all three years on most income statements you look at they’re going to show the last three years if not the last five years just to give you some reference to look at and say okay you know revenues going up or

Profits going up or this or that so you generally is going to show three years so the first thing we’re going to look at we’re going to look at you see the part that says annual data quarterly data we’re looking at the annual data so that’s the amount that happened over the entire year so revenue over the entire year cost of revenue you know gross profit all those

Things over the entire year we’re looking at you’ll one so the first category you’re going to see there is total revenue it’s right under period editing total revenue you’re going to see in 2013 if you go all the way to the far right they did 170 now that looks like it says 170 million in total revenue but all the numbers are in thousands they’re all in thousands

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Meaning they actually did one hundred and seventy billion dollars in revenue 170 billion dollars in revenue in 2013 if you go one year over there under total revenue in 2014 september 27 2014 they did 182 billion in revenue in this past year september 26 2015 that year ending they did 233 billion dollars in total revenue total revenue is exactly what it is it’s the

Total revenue it’s a total amount of money coming into the company it’s not profit it’s not anything like that it’s just a total amount of money coming into the company that they sell their products for the lion category rate under that is cost of revenue now what cost of revenue is that is how much the how much it costs them to make whatever is they are selling so

Whatever they sold they sold 233 billion worth of product to companies right or to people or whoever they the amount that it costs them to make that is 140 billion in 2015 we’re looking at 2015 now we’re just going to focus up 2015 for the rest of the time so 140 billion it costs them to make all that stuff all those iphones and ipads and those kinds of things so

They ended up coming out with gross profit the gross profits right under that remember we’re only looking at 2015 now forget the other two years so the gross profit is 93 billion dollars that was a gross profit okay moving on to the next category you see there’s operating expenses it’s kind of in a darker shade there so now we’re looking at operating expenses we

Have research and development what research and development is is iphones and ipads and all those things then to have a part of their business that’s just focusing on trying to innovate in the future so that’s research and development they have tons of scientists and engineers and all these guys in gals working for their company who are only focused on trying to

Make innovative products for the future so that is a that is research and development expense they spent eight billion dollars on research and development and that’s not just paying all those people to salaries to develop those products and things as paying for all the new device you know the new chips and whatnot to try out this chip and that chip and paying for

All those kinds of things paying for the expenses to have the research and development facilities all those expenses that all goes in the research and development line category so eight billion that’s a massive amount of money to spend on r&d but when your company is bigs apple you can afford it next number that we have set selling general and administrative

They spent over fourteen billion on back what’s selling general administrative is is there’s a ton of administrative positions right invoicing those kinds of things those kind of positions in the company that they spend a lot of money on a lot of money there’s just a lot of administrative crap you know people that are salespeople and even be paid all those kinds

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Of things um what company the size of apple spends so much money on all that stuff and all those jobs they create um inside their company that money has to come from somewhere so fourteen billion they spent last year on selling general administrative non-recurring category that is just like a one-time expense like say say they spend just an extra billion dollars

On something weird or something that could go under the non-recurring that’s not usually a line category that’s used very often the other category that’s not hue is very often either so basically they had the total operating expenses and whatnot once the fourteen billion is taken out the eight billion that’s being taken out from gross profit as you see they have

Seventy one billion left over at this point so now there’s still up seventy one billion all right so we got some more things coming out of here so they had some total other income or expenses net they actually made a billion dollars somehow on other income we could look into that and dive deep i’m not really going to do that and it’s not really necessary for this

Video but somehow they made 1.2 billion on other income earnings before interest in taxes so now they’re up to 72 billion in earnings before interest in taxes they have an interest expense they have no interest expense you see all three years they’ve never had an interest expense interest expense is exactly what it is if they’re paying out interest to a bank or

Something they have to put that in that line category there’s nothing there so their income before tax is still 72 billion then they have their income tax expense which is exactly what it is it’s an income taxes expense they have 19 billion they had to pay em in income taxes as a corporation all corporations usually pay between 25 percent and about 35 percent excuse

Me in income taxes depending on the company so they paid in nineteen billion dollars in income tax expense leaving them with a total of 53 billion in net income from continuing operations income from continuing offices you see there are 53 billion right under that we have a darker shaded line that says non-recurring events this is where non recurring events one-time

Things one-time expenses one-time things that are never in the general context never usually happen so this is these line items so we have discontinued operations what discontinued operations would be a say apple decided to shut down their ipad mmm business that would be a huge hit that apple would have to take because they would have to pay severance packages to

A ton of employees who work on the ipad lines they would have to shut down research and development facilities that would be expensive um they would have to probably uh maybe mark down the ipads from retailers and whatnot all those kinds of things would all go under discontinued operations so that can be a big expense sometimes apple didn’t have an extraordinary

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Items are exactly what they are extraordinary items that could be maybe they lost a bunch of money because a facility got flooded something like that or maybe they got a huge return the next year from a flooded facility something like that or a tornado came and it destroyed their building extraordinary expenses is exactly what is what it is effective accounting

Changes that is if they decide to do a different type of accounting apple did not change their accounting method they do the same exact way so nothing in there other items or other items so it leaves them with a net income of fifty three billion dollars mmm they didn’t have any preferred stock or other adjustments so that leaves net income attributable per excuse

Me applicable to common shares of 53 billion 53 billions so that is how much money they truly made at the end of the day when every single thing was paid out at the end they had fifty three billion dollars left over that is some passive amount of money but it’s apple and they’re the biggest corporation in the world we know this but that is insane so i hope this

Helped immensely guys understanding what an income statement is it’s not that complicated it really isn’t a lot of people get scared and they’re like ah income statement that can be a scary place it’s not scary it’s very easy when you break it down like that as long as you remember the line items so i’m going to remember the main ones the main ones obviously total

Revenue obviously cost of revenue what’s the gross profit and then at the end of the day what’s the net income what is left over after everything’s paid and when i’m judging a stock for our investments want to see one that’s revenues going up and the gross profits going up and same thing with my business obviously i want to see revenue going up and i want to see

Profits going up if both those things are good and that’s awesome anyways thank you so much for watching this guy’s this is part of a three-part series i’m doing the balance sheet tomorrow doing the cash flow the very next day and i’m going to release them all the single videos and i’m also going to put them all in a category together so if you want to watch all

Three at the same time you can thank you so much for watching guys and have a great day

Transcribed from video
Income Statement Tutorial! – Reading an Income Statement! By Financial Education

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