Analysis Intermediate: Understanding the Income Statement

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1.
What is a companys gross profit on sales if it earned $10 million in sales and spent $6 million on producing goods?
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$4 million. To calculate gross profit on sales, simply subtract cost of goods sold from sales.
2.
What must be subtracted from sales to arrive at gross profits on sales?
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Cost of goods sold. Cost of goods sold is the price the company paid to produce the goods. When subtracted from sales, gross profits on sales is the result.
3.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.
4.
What is the famous term for a companys net earnings?
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The bottom line. However, although it is called the bottom line, it does not occupy the lowest position on the page.
5.
Operating income includes any income that comes from outside sources.
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False. Outside sources are not part of the operating income equation.
6.
Suppose that the company Edu.gov.com had $4 million in operating income last year. Suppose that all of its other income was $1 million, and it paid $1 million in taxes. What are Edu.gov.coms earnings before interest and taxes?
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$5 million. Taxes do not count!
7.
If a company has decided not to pay dividends to its stockholders this year, how will its retained earnings relate to its net earnings?
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They will be the same. Retained earnings are net earnings minus dividends. If there are no dividends, then retained earnings will not have changed from net earnings.