1-14
FINANCIAL STATEMENT ANALYSIS
·
C
OSTS AND
E
XPENSES
L
ABOR AND
M
ATERIALS
total amount spent on labor wages and
material costs to produce the items sold for the period. It is
common for these costs to be separated into two accounts:
material costs listed as
C
OST OF
G
OODS
S
OLD
and labor listed as
D
IRECT
L
ABOR
C
OST
.
D
EPRECIATION
amount charged by the company for the use of
fixed assets to produce the items sold. This is not a cash
expenditure. It is an estimate of the decline in value of the plant and
equipment resulting from its use during the period.
S
ELLING
E
XPENSES
amount spent to sell the products or
services produced (includes advertising, sales commissions,
promotions, etc.)
G
ENERAL AND
A
DMINISTRATIVE
amount spent to manage the
production and sales of the company's products or services
(includes management salaries, office equipment, support staff,
etc.)
L
EASE
P
AYMENTS
amount spent on leasing plants, equipment,
office space, etc.
·
N
ET
O
PERATING
I
NCOME
amount earned by the company's
operations during the reporting period. The calculation is
N
ET
S
ALES
minus C
OSTS AND
E
XPENSES
. This value is also known as
E
ARNINGS
B
EFORE
I
NTEREST AND
T
AXES
(EBIT)
.
The Income Statement format varies between companies. The
C
OST AND
E
XPENSES
section may have more or less detail than our example. Common
variations may include combining
S
ELLING
E
XPENSES
with
G
ENERAL AND
A
DMINISTRATIVE
E
XPENSES
or combining
D
EPRECIATION
E
XPENSES
with
C
OST
OF
L
ABOR AND
M
ATERIALS
.