OMM 622
Income Statement – Ford Motor Company
The University of Arizona Global Campus
OMM 622 Financial Decision-Making
Income Statement – Ford Motor Company
Income statements show a company's revenue and expenses over time. Income statements
are critically significant to investors and analysts. It is also helpful in making well-informed
decisions on a company's financial health. To figure out where they need to go, companies look
at changes in the income statement over time. The aim of an income statement and how it
indicates a company's financial health will be explained in this article. Include points that an
analyst would use to evaluate the company's financial situation and examine the income
statement from Ford Motor Company's 2012 Annual Report.
Purpose of an Income Statement
According to Robbins & Robbins (1952), "The income account or profit and loss
statement is the medium for summarizing succinctly and concretely a business enterprise's
earnings experience during a previous stipulated period. It is the statement that draws together
the various elements that enter into the creation of earnings capacity" (p.48). The income
statement shows the financial performance of a corporation over a specified time. The report
demonstrates how and where the organization generates revenue and spends through profit gains
and losses. “Such a layman expects an income statement to mean one thing – a summary of the
business done, the costs and expenses incurred, and the profit realized. This is what it purports to
show” (Stans, 1949, p.6).
The four major elements of an income statement are sales or revenue, cost of goods
(COG) or services sold, expenses, and net profit or loss. The money earned from the sale of
things is referred to as sales or revenue. The COG or services sold is the price paid to produce
, and manufacture the goods. Expenses are funds used to keep a firm running. The net profit or
loss would establish whether the company made a profit or lost money (Epstein, 2014).
Important Points an Analyst Would Use in Assessing a Company's Financial Condition
When evaluating a company's financial situation, an analyst will look at numerous vital
factors; because the income statement aims to evaluate whether or not a company generated
money, analysts should concentrate on profit margins when evaluating a company's financial
situation. "Before considering operating expenses, a company's gross profit number is crucial for
evaluating how much profit it makes from real sales of its goods or services. If a company's
gross profit is not enough to cover operational costs, management must act quickly to correct the
situation." (Epstein, 2014).
Three ratios can assess a company's profitability: gross profit margin, operating profit
margin, and net profit margin. The gross profit margin reveals how well the company performs
after deducting the cost of goods (COG) or services sold. Gross Profit / Revenues is the formula
for gross profit margin, and the quotient is in percentage. If the proportion is high, it suggests
that the COG or services sold are produced efficiently. If the percentage is low, the production
cost is too expensive to provide a significant gross profit.
The operating profit margin shows how much profit a company makes; after all,
operating expenses are deducted. Operating Profit / Revenues is the formula for calculating the
operating profit margin, and the quotient is in percentages (Epstein, 2014). A high percentage
indicates robust cost and sales management, whereas a low percentage indicates operational
inefficiencies.
The net profit margin examines the company's total performance, considering both
operational and non-operating activities. The net profit margin is calculated as Net Profit /
Revenues, with the quotient in percentages (Epstein, 2014). Analysts and investors would make
well-informed decisions based on the company's resource use efficiency. They would also
Income Statement – Ford Motor Company
The University of Arizona Global Campus
OMM 622 Financial Decision-Making
Income Statement – Ford Motor Company
Income statements show a company's revenue and expenses over time. Income statements
are critically significant to investors and analysts. It is also helpful in making well-informed
decisions on a company's financial health. To figure out where they need to go, companies look
at changes in the income statement over time. The aim of an income statement and how it
indicates a company's financial health will be explained in this article. Include points that an
analyst would use to evaluate the company's financial situation and examine the income
statement from Ford Motor Company's 2012 Annual Report.
Purpose of an Income Statement
According to Robbins & Robbins (1952), "The income account or profit and loss
statement is the medium for summarizing succinctly and concretely a business enterprise's
earnings experience during a previous stipulated period. It is the statement that draws together
the various elements that enter into the creation of earnings capacity" (p.48). The income
statement shows the financial performance of a corporation over a specified time. The report
demonstrates how and where the organization generates revenue and spends through profit gains
and losses. “Such a layman expects an income statement to mean one thing – a summary of the
business done, the costs and expenses incurred, and the profit realized. This is what it purports to
show” (Stans, 1949, p.6).
The four major elements of an income statement are sales or revenue, cost of goods
(COG) or services sold, expenses, and net profit or loss. The money earned from the sale of
things is referred to as sales or revenue. The COG or services sold is the price paid to produce
, and manufacture the goods. Expenses are funds used to keep a firm running. The net profit or
loss would establish whether the company made a profit or lost money (Epstein, 2014).
Important Points an Analyst Would Use in Assessing a Company's Financial Condition
When evaluating a company's financial situation, an analyst will look at numerous vital
factors; because the income statement aims to evaluate whether or not a company generated
money, analysts should concentrate on profit margins when evaluating a company's financial
situation. "Before considering operating expenses, a company's gross profit number is crucial for
evaluating how much profit it makes from real sales of its goods or services. If a company's
gross profit is not enough to cover operational costs, management must act quickly to correct the
situation." (Epstein, 2014).
Three ratios can assess a company's profitability: gross profit margin, operating profit
margin, and net profit margin. The gross profit margin reveals how well the company performs
after deducting the cost of goods (COG) or services sold. Gross Profit / Revenues is the formula
for gross profit margin, and the quotient is in percentage. If the proportion is high, it suggests
that the COG or services sold are produced efficiently. If the percentage is low, the production
cost is too expensive to provide a significant gross profit.
The operating profit margin shows how much profit a company makes; after all,
operating expenses are deducted. Operating Profit / Revenues is the formula for calculating the
operating profit margin, and the quotient is in percentages (Epstein, 2014). A high percentage
indicates robust cost and sales management, whereas a low percentage indicates operational
inefficiencies.
The net profit margin examines the company's total performance, considering both
operational and non-operating activities. The net profit margin is calculated as Net Profit /
Revenues, with the quotient in percentages (Epstein, 2014). Analysts and investors would make
well-informed decisions based on the company's resource use efficiency. They would also
