FACTORS AFFECTING A COMPANY’S
INCOME STATEMENT
2
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Getting Started
3
Let’s understand factors of production through an
engaging activity. Go to The four factors of
production.
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Name those FACTORS!
4
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Natural Resources
Natural Resources
Factors of
Production
Capital Resources
5
Raw materials found in nature:
• Trees
• Animals
•Water
• Plants
• Minerals
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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
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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
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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.
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Human Resources
Human Resources
Natural Resources
Organize Your Thoughts
Human Resources
Factors of
Production
Capital Resources
Human Resources
• List
Buildings,
• Materials,
and
Equipment
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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.
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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
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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
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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?
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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
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• 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
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• 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
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Independent Activity
17
REVENUE
COST OF SALES
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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
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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.