Income Statement Analysis

The income statement provides us with information about the firms revenues and expenses
over some previous time period ( usually quarterly, semiannually and annually). It presents in a
summary form the profitability of a firm over an annual period.
Rev- Exp=Income
The revenues and expenses are reported based on the principles of accrual accounting : there
are recognized as they are incurred rather than when the cash is received or paid out. The net
income will not reflect the cash generated by the company.
anglo-saxon approach.
Sales revenue
-Cost of goods sold
-selling, general and administrative expenses
=Operating Income
+Other revenue
-Other expenses (Except Interest)
=EBIT
-Interest payment
=EBT
-Taxes
=Net Income
Romanian Approach
Operating revenues
-Operating expenses
=Operating Income
Financial revenues
-Financial expenses
=Financial income
Extraordinary revenues
-Extraordinary expenses
=Extraordinary Income
Operating Breakeven Analysis an analytical technique for studying relationship between sales
revenues, operating costs, and profits.
First of all you have to identify the companys:
A)Operating Fixed Costs (F)

-depreciation & amortization;

-rents
-general administrative expenses;
-executives salaries;
B)Operating variable costs (VC)
-raw materials costs
-costs of labour

Degree of Operating Leverage the percentage change in EBIT associated with a given
percentage change in sales.