FACTORS AFFECTING A COMPANY’S INCOME STATEMENT 2 “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Copyright © Texas Education Agency, 2011. All rights reserved. Getting Started 3 Let’s understand factors of production through an engaging activity. Go to The four factors of production. Copyright © Texas Education Agency, 2011. All rights reserved. Name those FACTORS! 4 Copyright © Texas Education Agency, 2011. All rights reserved. Natural Resources Natural Resources Factors of Production Capital Resources 5 Raw materials found in nature: • Trees • Animals •Water • Plants • Minerals Copyright © Texas Education Agency, 2011. All rights reserved. Human Resources • Light • Wind Human Resources Natural Resources Human Resources Factors of Production Capital Resources 6 Knowledge, efforts, and skills of people working in various roles: Cashier Doctor Chef Banker Engineer Manager Teacher Researcher Paramedic Welder Governor Maid Copyright © Texas Education Agency, 2011. All rights reserved. Human Resources Custodian Accountant Police Architect Writer Painter Human Resources Natural Resources Capital Resources Human Resources Factors of Production Capital Resources Human Resources 7 Things used to produce goods and services: Building Factory Warehouse Materials Fabric Lumber Copyright © Texas Education Agency, 2011. All rights reserved. Equipment Sewing Machine Delivery Truck Natural Resources Entrepreneurial Resources Factors of Production Capital Resources 8 Required to meet the changing wants and needs of people. Entrepreneurial resources identify new processes, develop new resources, and create new technologies. Copyright © Texas Education Agency, 2011. All rights reserved. Human Resources Human Resources Natural Resources Organize Your Thoughts Human Resources Factors of Production Capital Resources Human Resources • List Buildings, • Materials, and Equipment Copyright © Texas Education Agency, 2011. All rights reserved. ENTREPRENERIAL • List Labor Forces CAPITAL • List Natural Resources HUMAN NATURAL 9 • List Creative Resources What’s in an Income Statement? • Revenue • Less: Cost of Sales Gross Profit 10 Learn about the income statement through visiting the U. S. Securities and Exchange Commission. Copyright © Texas Education Agency, 2011. All rights reserved. Net Income • Less: Expenses Income Statement Format (Sample) • Revenue • Less: Cost of Sales Net Income • Less: Expenses Gross Profit 11 Revenue Cost of Sales Gross Profit (Revenue less Cost of Sales) Operating Expenses (i.e., Salaries, Rent, Depreciation) Income From Operations (Gross Profit less Expenses) Less: Interest Expense (or Add Interest Income) Net Income Before Tax Income Tax Net Income After Tax Copyright © Texas Education Agency, 2011. All rights reserved. Calculating Net Income and Net Loss • Revenue • Less: Cost of Sales Gross Profit 12 REVENUE less EXPENSES equals… If REVENUE > EXPENSES, then NET INCOME If REVENUE < EXPENSES, then NET LOSS Copyright © Texas Education Agency, 2011. All rights reserved. Net Income • Less: Expenses • Revenue • Less: Cost of Sales Tying it all together Net Income • Less: Expenses Gross Profit Natural Resources Capital Resources 13 How do you utilize the factors of production to improve a business’ profits, revenues, and expenses? Copyright © Texas Education Agency, 2011. All rights reserved. Human Resources Factors of Production Human Resources • Revenue • Less: Cost of Sales Increasing Revenue Net Income • Less: Expenses Gross Profit Natural Resources Human Resources Factors of Production Capital Resources Human Resources 14 Increase price Increase productivity Increase promotion Copyright © Texas Education Agency, 2011. All rights reserved. • Revenue • Less: Cost of Sales Decreasing Cost of Sales Net Income • Less: Expenses Gross Profit Natural Resources Human Resources Factors of Production Capital Resources Human Resources 15 Decrease cost inputs Increase productivity of direct labor Decrease waste Copyright © Texas Education Agency, 2011. All rights reserved. • Revenue • Less: Cost of Sales Decreasing Expenses Net Income • Less: Expenses Gross Profit Natural Resources Human Resources Factors of Production Capital Resources Human Resources 16 Reduce variable costs Evaluate fixed costs Eliminate wasteful spending Copyright © Texas Education Agency, 2011. All rights reserved. Independent Activity 17 REVENUE COST OF SALES Copyright © Texas Education Agency, 2011. All rights reserved. EXPENSES Evaluation 18 My Potato Chip Corporation Revenue Cost of Goods Sold Gross Profit Gross Profit % Units Sold 2009 2008 200,000 250,000 75,000 85,000 125,000 63% 165,000 66% 80,000 100,000 Copyright © Texas Education Agency, 2011. All rights reserved. Evaluation 19 Copyright © Texas Education Agency, 2011. All rights reserved. • Revenue • Less: Cost of Sales Resources Net Income • Less: Expenses Gross Profit Natural Resources Human Resources Factors of Production Capital Resources Human Resources 20 Brown, Betty J., Clow, John E., & Brown, Kenneth W. (1995). Introduction to Business. New York: Glencoe/Mac-Graw Hill. ________ (2007). Beginner’s Guide to Financial Statements. Retrieved from U.S. Securities and Exchange Commission Web site: http://www.sec.gov/investor/pubs/begfinstmtguide.htm Penn, Pace (2010, February 13). The four factors of production. Retrieved from University of North Carolina at Chapel Hill, LEARN NC Web site: http://www.learnnc.org/lp/pages/3760 Rubistar. (2000 – 2008). Retrieved from ALTEC of University of Kansas Web site: http://rubistar.4teachers.org/index.php Copyright © Texas Education Agency, 2011. All rights reserved.