{"id":2018,"date":"2018-03-27T21:48:56","date_gmt":"2018-03-27T21:48:56","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/?post_type=chapter&#038;p=2018"},"modified":"2024-04-25T02:50:41","modified_gmt":"2024-04-25T02:50:41","slug":"profit-and-loss-statements","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/chapter\/profit-and-loss-statements\/","title":{"raw":"Profit-and-Loss Statements","rendered":"Profit-and-Loss Statements"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\n<ul>\r\n \t<li>Analyze a profit-and-loss statement<\/li>\r\n<\/ul>\r\n<\/div>\r\nThe income statement is an accounting tool that reports a company\u2019s financial performance over a specific period, providing a summary of the business\u2019s revenues and expenses from operations and non-operational activity. Below, you\u2019ll find a sample income statement for XYZ Retailers. We will use this statement to analyze and understand the importance of financial statements for retailers.\r\n<p style=\"text-align: center;\"><\/p>\r\n\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\" summary=\"This Income Statement for XYZ Retailer shows its revenue, its less other operating expenses, and its net profit (EBIT).\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center;\" colspan=\"3\"><strong>XYZ Retailer<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center;\" colspan=\"3\"><strong>Income Statement<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center;\" colspan=\"3\"><strong>Year Ended 30 June 2011<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\"><strong>REVENUE<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Sales<\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$250,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px; text-align: left;\"><strong>\u00a0 \u00a0 \u00a0Cost of Goods Sold<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Opening inventories (as of 1 July 2010)<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">40,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Add purchases<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">100,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Add freight-in and customs duty<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">10,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Less closing inventory (as at 30 June 2011)<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">60,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Less Cost of Goods Sold<\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">90,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Gross Profit<\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">160,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\"style=\"width: 35.7351%; height: 15px;\"><strong>\u00a0 \u00a0 \u00a0Add other operating revenue<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Rent received<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">3,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Commission received<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">2,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\"><strong>Total Revenue<\/strong><\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$165,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\"><\/td>\r\n<td style=\"width: 13.9261%; height: 15px; text-align: center;\"><\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\"><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\"><strong>LESS OTHER OPERATING EXPENSES<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>Selling &amp; Distribution expense<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Advertising<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">5,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Public Relations<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">2,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Website marketing<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">7,500<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>General and Administrative expenses<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Depreciation<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">10,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Electricity<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,500<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Insurance<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Rent expense<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">30,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Wages &amp; salaries<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">46,500<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>Financial expenses<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Bad debts<\/td>\r\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,500<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Total expenses<\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">105,000<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\"><strong>NET PROFIT (EBIT)<\/strong><\/td>\r\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$60,000<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nAs you can see, XYZ has net sales revenue of $250,000, given that there are no discounts or allowances to apply to reduce their sales. But, it may be more difficult to understand how to determine COGS (cost of goods sold). In truth, we have to understand how the XYZ operates and what the accounting entries mean.\r\n\r\nIn this case, XYZ had $40,000 in inventory on-hand, when the accounting period opened on 7\/1\/17. That simply means they had product in their inventory, such as boxes and cans sitting on their shelves and in their backroom. During the period, they made $100,000 in additional purchases to bring in more inventory. To this they add freight and customs expenses of $10,000. So, for the period, their total accumulated inventory would have been $150,000 ($40,000 + $100,000 + $10,000).\r\n\r\nBut, at the end of the period, they have only $60,000 of inventory on-hand. What happened to the rest? Easy. It was sold. So, we now know the COGS is $90,000 ($150,000 accumulated inventory - $60,000 ending inventory). Thus, we can see that sales net of COGS is $160,000 ($250,000 in revenue - $90,000 in COGS). Further, we see that XYZ has some non-traditional revenue streams: rent ($3,000) and commissions ($2,000). We add these to get a total net revenue of $165,000.\r\n\r\nHowever, as we learned earlier, businesses incur other operating expenses. For XYZ, these are related to selling and distribution, general and administrative, and financial. In total, they sum to $105,000 ($14,500 in selling and distribution + $89,000 in general and administrative + $1,500 in financial) and are deducted from the total net revenue to show $60,000 in net profit (EBIT or earnings before interest and taxes).\r\n\r\nWhile the numbers are straight forward, it\u2019s the meaning behind them that\u2019s most important and telling for a decision-maker, looking to improve the financial performance of the organization. That is, they reflect what is happening in the business\u2019 operations for better or for worse. For example, the closing inventory is $20,000 greater than the opening inventory. Does this reflect a slow down in sales or a ramp-up in inventory on-hand to accommodate seasonality? If we compared these results against past periods, what we would learn about changes selling and distribution expenses? Wages? Are these costs increasing or decreasing? And, at what rate are they increasing\/decreasing relative to revenue and profit?\r\n\r\nAs you can see, the income statement provides important information about the financial performance of the firm, helping decision-makers understand where to focus to improve going forward. The following video, which uses Walmart as an example, may be a helpful tutorial to broaden your understanding of income statements.\r\n\r\nhttps:\/\/www.youtube.com\/watch?v=jovKWaUxdmU\r\n\r\nYou can <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Retail+Managment\/Transcripts\/HowToAnalyzeAnIncomeStatement_transcript.txt\" target=\"_blank\" rel=\"noopener\">view the transcript for \"How to analyze an income statement - Walmart example (case study)\" here (opens in new window)<\/a>.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/671f090e-0106-4a68-852d-97a0d3606a28\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<ul>\n<li>Analyze a profit-and-loss statement<\/li>\n<\/ul>\n<\/div>\n<p>The income statement is an accounting tool that reports a company\u2019s financial performance over a specific period, providing a summary of the business\u2019s revenues and expenses from operations and non-operational activity. Below, you\u2019ll find a sample income statement for XYZ Retailers. We will use this statement to analyze and understand the importance of financial statements for retailers.<\/p>\n<p style=\"text-align: center;\">\n<table style=\"border-collapse: collapse; width: 100%;\" summary=\"This Income Statement for XYZ Retailer shows its revenue, its less other operating expenses, and its net profit (EBIT).\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center;\" colspan=\"3\"><strong>XYZ Retailer<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center;\" colspan=\"3\"><strong>Income Statement<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center;\" colspan=\"3\"><strong>Year Ended 30 June 2011<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\"><strong>REVENUE<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Sales<\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$250,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px; text-align: left;\"><strong>\u00a0 \u00a0 \u00a0Cost of Goods Sold<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Opening inventories (as of 1 July 2010)<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">40,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Add purchases<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">100,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Add freight-in and customs duty<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">10,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px; text-align: left;\">\u00a0 \u00a0 \u00a0Less closing inventory (as at 30 June 2011)<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">60,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Less Cost of Goods Sold<\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">90,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Gross Profit<\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">160,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\"><strong>\u00a0 \u00a0 \u00a0Add other operating revenue<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Rent received<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">3,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Commission received<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">2,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\"><strong>Total Revenue<\/strong><\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$165,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\"><\/td>\n<td style=\"width: 13.9261%; height: 15px; text-align: center;\"><\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\"><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\"><strong>LESS OTHER OPERATING EXPENSES<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>Selling &amp; Distribution expense<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Advertising<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">5,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Public Relations<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">2,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Website marketing<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">7,500<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>General and Administrative expenses<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Depreciation<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">10,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Electricity<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,500<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Insurance<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Rent expense<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">30,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Wages &amp; salaries<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">46,500<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"3\" style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0<strong>Financial expenses<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 35.7351%; height: 15px;\">\u00a0 \u00a0 \u00a0Bad debts<\/td>\n<td colspan=\"2\" style=\"width: 13.9261%; height: 15px; text-align: center;\">1,500<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\">Total expenses<\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">105,000<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td colspan=\"2\" style=\"width: 35.7351%; height: 15px;\"><strong>NET PROFIT (EBIT)<\/strong><\/td>\n<td style=\"width: 14.4962%; height: 15px; text-align: center;\">$60,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>As you can see, XYZ has net sales revenue of $250,000, given that there are no discounts or allowances to apply to reduce their sales. But, it may be more difficult to understand how to determine COGS (cost of goods sold). In truth, we have to understand how the XYZ operates and what the accounting entries mean.<\/p>\n<p>In this case, XYZ had $40,000 in inventory on-hand, when the accounting period opened on 7\/1\/17. That simply means they had product in their inventory, such as boxes and cans sitting on their shelves and in their backroom. During the period, they made $100,000 in additional purchases to bring in more inventory. To this they add freight and customs expenses of $10,000. So, for the period, their total accumulated inventory would have been $150,000 ($40,000 + $100,000 + $10,000).<\/p>\n<p>But, at the end of the period, they have only $60,000 of inventory on-hand. What happened to the rest? Easy. It was sold. So, we now know the COGS is $90,000 ($150,000 accumulated inventory &#8211; $60,000 ending inventory). Thus, we can see that sales net of COGS is $160,000 ($250,000 in revenue &#8211; $90,000 in COGS). Further, we see that XYZ has some non-traditional revenue streams: rent ($3,000) and commissions ($2,000). We add these to get a total net revenue of $165,000.<\/p>\n<p>However, as we learned earlier, businesses incur other operating expenses. For XYZ, these are related to selling and distribution, general and administrative, and financial. In total, they sum to $105,000 ($14,500 in selling and distribution + $89,000 in general and administrative + $1,500 in financial) and are deducted from the total net revenue to show $60,000 in net profit (EBIT or earnings before interest and taxes).<\/p>\n<p>While the numbers are straight forward, it\u2019s the meaning behind them that\u2019s most important and telling for a decision-maker, looking to improve the financial performance of the organization. That is, they reflect what is happening in the business\u2019 operations for better or for worse. For example, the closing inventory is $20,000 greater than the opening inventory. Does this reflect a slow down in sales or a ramp-up in inventory on-hand to accommodate seasonality? If we compared these results against past periods, what we would learn about changes selling and distribution expenses? Wages? Are these costs increasing or decreasing? And, at what rate are they increasing\/decreasing relative to revenue and profit?<\/p>\n<p>As you can see, the income statement provides important information about the financial performance of the firm, helping decision-makers understand where to focus to improve going forward. The following video, which uses Walmart as an example, may be a helpful tutorial to broaden your understanding of income statements.<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"How to analyze an income statement - Walmart example (case study)\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/jovKWaUxdmU?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>You can <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Retail+Managment\/Transcripts\/HowToAnalyzeAnIncomeStatement_transcript.txt\" target=\"_blank\" rel=\"noopener\">view the transcript for &#8220;How to analyze an income statement &#8211; Walmart example (case study)&#8221; here (opens in new window)<\/a>.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_671f090e-0106-4a68-852d-97a0d3606a28\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/671f090e-0106-4a68-852d-97a0d3606a28?iframe_resize_id=assessment_practice_id_671f090e-0106-4a68-852d-97a0d3606a28\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-2018\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Profit-and-Loss Statements. <strong>Authored by<\/strong>: Patrick Williams. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>How to analyze an income statement - Walmart example (case study). <strong>Authored by<\/strong>: The Finance Storyteller. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=jovKWaUxdmU\">https:\/\/www.youtube.com\/watch?v=jovKWaUxdmU<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":83755,"menu_order":4,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Profit-and-Loss Statements\",\"author\":\"Patrick Williams\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"How to analyze an income statement - Walmart example (case study)\",\"author\":\"The Finance Storyteller\",\"organization\":\"\",\"url\":\"https:\/\/www.youtube.com\/watch?v=jovKWaUxdmU\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"4ecba029-7f4d-4e71-9a67-1f3b2e1e42a2, 269c39b7-6f13-4d5d-b847-b903cefca8d0","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-2018","chapter","type-chapter","status-publish","hentry"],"part":2010,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2018","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/users\/83755"}],"version-history":[{"count":16,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2018\/revisions"}],"predecessor-version":[{"id":6472,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2018\/revisions\/6472"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/parts\/2010"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapters\/2018\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/media?parent=2018"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/pressbooks\/v2\/chapter-type?post=2018"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/contributor?post=2018"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-retailmanagement\/wp-json\/wp\/v2\/license?post=2018"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}