Income Statements » What Do I See? » Exercises
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E X E R C I S E S
is.wis.is.030 Comparing and contrasting common line items on income statements
This exercise compares and contrasts the income statements for Cathay Pacific Airways,
Cisco Systems, Coca-Cola, FedEx, The Gap, Intel, Nike, and Starbucks. See the companies’
income statements on pages 3–10. Check your answers in the provided solution.
(a) Net revenue is the first item on Intel’s income statement. What line items on the
other companies’ income statements likely represent a similar concept?
(b) Which of the companies disclose more information about net revenues on their
income statements than the others?
(c) The net in net revenues means gross revenues net of returns, early payment discounts, and price-protection discounts. Nike and FedEx report “Revenues” rather
than “Net revenues.” What are possible reasons why they did not include the net
modifier?
(d) Cost of sales is the second item on Intel’s income statement. Which of the other
companies recognize this concept on their income statements (perhaps using a synonym)?
(e) Two of the companies recognize cost of sales in net income but do not disclose it
separately on their income statements. What do these companies have in common?
(f) Which of the companies explicitly disclose gross margins or a synonym for gross
margins on their income statements?
(g) Two of the companies disclose research and development expenses on their income
statements? How do these companies differ from the other companies?
(h) Presumably Nike and Coca-Cola have some research and development activities.
Which line items on their income statements likely include research and development expenses?
(i) Which company’s income statement discloses the most precise information about
sales and marketing expenses?
(j) Which companies’ income statements disclose the fewest line items associated with
operating expenses?
(k) In terms of what you know about the companies, which seem to disclose the most
detailed information about its operating expenses on its income statement?
(l) Which of the companies disclose investment gains or losses on their income statements?
(m)Which of the companies separately disclose interest income and interest expense on
their income statements?
(n) Which of the companies identified above in (m) signs interest income negatively on
its income statement? Interest income would seem to be good for owners, why is it
signed negatively?
(o) Which of the companies identified above in (m) signs interest income and interest
expense positively on its income statement? Why do they have the same sign?
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NAVIGATING ACCOUNTING®
(p) Which line item(s) on Cathay Pacific’s statement most like represents interest
income and interest expenses?
(q) Provision for taxes is disclosed on Intel’s income statement. Which of the other
companies recognize this concept on their income statements (perhaps using a synonym)?
(r) All of Cathay Pacific’s operating expenses have negative signs, while all of FedEx’s
operating expenses have positive signs. In fact, operating expenses have positive
signs for all the other companies. What can you conclude about income statement
signing conventions?
© 1991-2010 NavAcc LLC, G. Peter & Carolyn R. Wilson
3
EXERCISES
Figure 1 Cathay Pacific Airways Limited Statement of Comprehensive Income
This figure is an excerpt from Cathay Pacific’s 2010 annual report, page 52.
Consolidated Statement of Comprehensive Income
for the year ended 31st December 2010
Turnover
Passenger services
Cargo services
Catering, recoveries and other services
Total turnover
Expenses
Staff
Inflight service and passenger expenses
Landing, parking and route expenses
Fuel
Aircraft maintenance
Aircraft depreciation and operating leases
Other depreciation, amortisation and operating leases
Commissions
Others
Operating expenses
Operating profit before non-recurring items
Profit on disposal of investments
Gain on deemed disposal of an associate
Operating profit
Finance charges
Finance income
Net finance charges
Share of profits of associates
Profit before tax
Taxation
Profit for the year
Other comprehensive income
Cash flow hedges
Revaluation (deficit)/surplus arising from available-for-sale
financial assets
Share of other comprehensive income of associates
Exchange differences on translation of foreign operations
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Profit attributable to
Owners of Cathay Pacific
Non-controlling interests
Note
2010
HK$M
2009
HK$M
2010
US$M
2009
US$M
1
59,354
25,901
4,269
89,524
45,920
17,255
3,803
66,978
7,609
3,321
547
11,477
5,887
2,212
488
8,587
(13,850)
(3,308)
(11,301)
(28,276)
(7,072)
(8,288)
(1,107)
(736)
(4,533)
(78,471)
11,053
2,165
868
14,086
(1,655)
677
(978)
2,587
15,695
(1,462)
14,233
(12,618)
(2,915)
(10,458)
(17,349)
(6,567)
(7,978)
(1,103)
(571)
(2,940)
(62,499)
4,479
1,254
–
5,733
(1,435)
588
(847)
261
5,147
(283)
4,864
(1,776)
(424)
(1,449)
(3,625)
(907)
(1,062)
(142)
(94)
(581)
(10,060)
1,417
278
111
1,806
(212)
87
(125)
331
2,012
(187)
1,825
(1,618)
(374)
(1,341)
(2,224)
(842)
(1,023)
(141)
(73)
(377)
(8,013)
574
161
–
735
(184)
75
(109)
33
659
(36)
623
(488)
329
(62)
42
(15)
(131)
313
(321)
13,912
479
11
8
827
5,691
(2)
(17)
40
(41)
1,784
62
1
1
106
729
14,048
185
14,233
4,694
170
4,864
1,801
24
1,825
601
22
623
13,727
185
13,912
357.1¢
5,521
170
5,691
119.3¢
1,760
24
1,784
45.8¢
707
22
729
15.3¢
3
4
5
6
15
7
8
9
Total comprehensive income attributable to
Owners of Cathay Pacific
Non-controlling interests
Earnings per share (basic and diluted)
10
The accounts are prepared and presented in HK$, the functional currency. The US$ figures are shown only as supplementary information and are translated
at HK$7.8.
The notes on pages 58 to 97 and the principal accounting policies on pages 48 to 51 form part of these accounts.
52
Source: www.cathaypacific.com
See accompanying notes in annual report
4
NAVIGATING ACCOUNTING®
Figure 2 Cisco Systems, Inc. Statement of Operations
This figure is an excerpt from Cisco’s 2010 annual report, page 40.
Consolidated Statements of Operations
(in millions, except per-share amounts)
Years Ended
NET SALES:
Product
Service
Total net sales
COST OF SALES:
Product
Service
Total cost of sales
GROSS MARGIN
OPERATING EXPENSES:
Research and development
Sales and marketing
General and administrative
Amortization of purchased intangible assets
In-process research and development
Total operating expenses
OPERATING INCOME
Interest income
Interest expense
Other income (loss), net
Interest and other income, net
INCOME BEFORE PROVISION FOR INCOME TAXES
Provision for income taxes
NET INCOME
Net income per share—basic
Net income per share—diluted
Shares used in per-share calculation—basic
Shares used in per-share calculation—diluted
July 31, 2010
July 25, 2009
July 26, 2008
$
$
$
$
$
$
32,420
7,620
40,040
29,131
6,986
36,117
33,099
6,441
39,540
11,620
2,777
14,397
25,643
10,481
2,542
13,023
23,094
11,660
2,534
14,194
25,346
5,273
8,716
1,999
491
—
16,479
9,164
635
(623)
239
251
9,415
1,648
7,767
1.36
1.33
5,732
5,848
5,208
8,403
1,565
533
63
15,772
7,322
845
(346)
(128)
371
7,693
1,559
6,134
1.05
1.05
5,828
5,857
5,325
8,690
1,387
499
3
15,904
9,442
1,143
(319)
(11)
813
10,255
2,203
8,052
1.35
1.31
5,986
6,163
$
$
$
$
$
$
See Notes to Consolidated Financial Statements.
40 Cisco Systems, Inc.
Source: www.cisco.com
See accompanying notes in annual report
5
EXERCISES
Figure 3 Coca-Cola Company Statements of Income
This figure is an excerpt from Coke’s 2010 annual Form 10-K report, page 88.
THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
(In millions except per share data)
2010
2009
2008
$ 35,119
12,693
$ 30,990
11,088
$ 31,944
11,374
22,426
13,158
819
19,902
11,358
313
20,570
11,774
350
8,449
317
733
1,025
5,185
8,231
249
355
781
40
8,446
333
438
(874)
39
INCOME BEFORE INCOME TAXES
Income taxes
14,243
2,384
8,946
2,040
7,506
1,632
CONSOLIDATED NET INCOME
Less: Net income attributable to noncontrolling interests
11,859
50
6,906
82
5,874
67
NET OPERATING REVENUES
Cost of goods sold
GROSS PROFIT
Selling, general and administrative expenses
Other operating charges
OPERATING INCOME
Interest income
Interest expense
Equity income (loss) — net
Other income (loss) — net
$ 11,809
$
6,824
$
5,807
BASIC NET INCOME PER SHARE
$
5.12
$
2.95
$
2.51
DILUTED NET INCOME PER SHARE1
$
5.06
$
2.93
$
NET INCOME ATTRIBUTABLE TO SHAREOWNERS OF THE COCA-COLA COMPANY
1
2.49
AVERAGE SHARES OUTSTANDING
Effect of dilutive securities
2,308
25
2,314
15
2,315
21
AVERAGE SHARES OUTSTANDING ASSUMING DILUTION
2,333
2,329
2,336
1
Basic net income per share and diluted net income per share are calculated based on net income attributable to shareowners of
The Coca-Cola Company.
Refer to Notes to Consolidated Financial Statements.
88
Source: www.thecoca-colacompany.com
See accompanying notes in annual report
6
NAVIGATING ACCOUNTING®
Figure 4 FedEx Corporation Statements of Income
This figure is an excerpt from FedEx’s 2010 annual report, page 41.
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
REVENUES
OPERATING EXPENSES:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
Impairment and other charges
Other
OPERATING INCOME
OTHER INCOME (EXPENSE):
Interest expense
Interest income
Other, net
INCOME BEFORE INCOME TAXES
PROVISION FOR INCOME TAXES
NET INCOME
BASIC EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE
2010
Years ended May 31,
2009
2008
$ 34,734
$ 35,497
$ 37,953
14,027
4,728
2,359
1,958
3,106
1,715
18
4,825
32,736
13,767
4,534
2,429
1,975
3,811
1,898
1,204
5,132
34,750
14,202
4,634
2,441
1,946
4,409
2,068
882
5,296
35,878
1,998
747
2,075
(79)
8
(33)
(104)
1,894
710
$ 1,184
$ 3.78
$ 3.76
(85)
26
(11)
(70)
677
579
98
0.31
0.31
(98)
44
(5)
(59)
2,016
891
$ 1,125
$ 3.64
$ 3.60
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Source: www.fedex.com
See accompanying notes in annual report
41
7
EXERCISES
Figure 5 The Gap Inc. Statements of Income
This figure is an excerpt from Gap’s 2010 annual Form 10-K report, page 37.
THE GAP, INC.
CONSOLIDATED STATEMENTS OF INCOME
2010
Fiscal Year
2009
2008
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold and occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,664
8,775
$14,197
8,473
$14,526
9,079
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,889
3,921
5,724
3,909
5,447
3,899
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (reversal) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,968
(8)
(6)
1,815
6
(7)
1,548
1
(37)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,982
778
1,816
714
1,584
617
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,204
$ 1,102
Weighted-average number of shares—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of shares—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
636
641
694
699
($ and shares in millions except per share amounts)
$
967
716
719
Earnings per share—basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share—diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.89
1.88
$
$
1.59
1.58
$
$
1.35
1.34
Cash dividends declared and paid per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
0.40
$
0.34
$
0.34
See Accompanying Notes to Consolidated Financial Statements
Source: www.gap.com
See accompanying notes in annual report
37
8
NAVIGATING ACCOUNTING®
Figure 6 Intel Corporation Statements of Income
This figure is an excerpt from Intel’s 2010 annual Form 10-K report, page 48.
Table of Contents
INTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 25, 2010
(In
Millions,
Except Per
Share
Amounts)
2010
2009
2008
$ 43,623
15,132
$ 35,127
15,566
$ 37,586
16,742
28,491
19,561
20,844
6,576
6,309
—
18
5,653
7,931
231
35
5,722
5,452
710
6
Operating expenses
12,903
13,850
11,890
Operating income
Gains (losses) on equity method investments, net
Gains (losses) on other equity investments, net
Interest and other, net
15,588
117
231
109
5,711
(147)
(23)
163
8,954
(1,380)
(376)
488
Income before taxes
Provision for taxes
16,045
4,581
5,704
1,335
7,686
2,394
Net revenue
Cost of sales
Gross margin
Research and development
Marketing, general and administrative
Restructuring and asset impairment charges
Amortization of acquisition-related intangibles
Net income
$ 11,464
$
4,369
$
5,292
Basic earnings per common share
$
2.06
$
0.79
$
0.93
Diluted earnings per common share
$
2.01
$
0.77
$
0.92
Weighted average common shares outstanding:
Basic
Diluted
5,555
5,557
5,663
5,696
5,645
5,748
See accompanying notes.
48
Source: www.intel.com
See accompanying notes in annual report
9
EXERCISES
Figure 7 Nike Inc. Statements of Income
This figure is an excerpt from Nike’s 2010 annual Form 10-K report, page 56.
Table of Contents
ontents
Table of Contents
s
NIKE, INC.
NIKE,
INC.
NIKE,
INC.
CONSOLIDATED STATEMENTS
OF INCOME
CONSOLIDATED STATEMENTS
CONSOLIDATED
OF INCOME STATEMENTS OF INCOME
Revenues
Cost of sales
Year Ended May 31,
2010
2009
2008
Year Ended May 31,
Year Ended May 31,
(In millions, except per share data)
2010
2009
2008
2010
2009
$19,014.0
$19,176.1
$18,627.0
(In millions, except
per share data)
(In millions, except
per share
Revenues
Cost of sales
Gross margin
Selling and administrative
expense
in
Gross margin
Restructuring
charges
16)
administrative
expense
Selling(Note
and administrative
expense
Goodwill
(Note 4)charges (Note 16)
ng charges
(Note impairment
16) Restructuring
Intangible
and other
assetimpairment
impairment(Note
(Note4)
4)
mpairment
(Note 4)
Goodwill
Interest
expenseIntangible
(income),
net other
(Notesasset
6, 7impairment
and 8)
nd other
asset impairment
(Note 4)
and
(Note 4)
Other (income)
expense,
net8)
(Notes
17 andnet
18)(Notes 6, 7 and 8)
ense (income),
net (Notes
Interest
6, 7 expense
and
(income),
me) expense, net (Notes
Other
17 and
(income)
18) expense, net (Notes 17 and 18)
Income before income taxes
Income
taxes (Note
9) before income taxes
ore income
taxes
Income
es (Note 9)
Income taxes (Note 9)
Net income
Net income
Basic earnings per common share (Notes 1 and 12)
ngs per common share Basic
(Notesearnings
1 and 12)
per common share (Notes 1 and 12)
Diluted earnings per common share (Notes 1 and 12)
nings per common share
Diluted
(Notesearnings
1 and 12)
per common share (Notes 1 and 12)
Dividends declared per common share
eclared per common share
Dividends declared per common share
$19,014.0
10,213.6
8,800.4
6,326.4
—
—
—
6.3
(49.2)
2,516.9
610.2
$ 1,906.7
$
3.93
$
3.86
$
1.06
10,213.6
$19,176.1
10,571.7
8,800.4
6,326.4
8,604.4
6,149.6—
195.0—
199.3—
202.06.3
(49.2)
(9.5)
(88.5)
2,516.9
610.2
1,956.5
469.8
$ 1,906.7
$ 1,486.7
$
3.93
$
3.07
$
3.86
$
3.03
$
1.06
$
0.98
10,571.7
$18,627.0
$19,014.0
10,239.6
10,213.6
8,604.4
6,149.6
8,387.4
8,800.4
195.0
5,953.7
6,326.4
199.3
—
—
202.0
—
—
(9.5)
—
—
(88.5)
(77.1)
6.3
(49.2)
7.9
1,956.5
469.8
2,502.9
2,516.9
619.5
610.2
$ 1,486.7
$$ 1,883.4
1,906.7
$
3.07
$$ 3.80
3.93
$
3.03
$$ 3.74
3.86
$
0.98
$$ 0.875
1.06
The accompanying notes to consolidated financial statements are an integral part of this statement.
The accompanying notes to consolidated
The accompanying
financial statements
notes to are
consolidated
an
part of this
statements
statement.
are an integral part of this statement.
56integralfinancial
56
56
Source: www.nike.com
See accompanying notes in annual report
10,239.6
$19,176.1
10,571.7
8,387.4
5,953.7
8,604.4
—
6,149.6
—
195.0
—
199.3
(77.1)
202.0
7.9
(9.5)
(88.5)
2,502.9
619.5
1,956.5
469.8
$ 1,883.4
$ 1,486.7
$
3.80
$
3.07
$
3.74
$
3.03
$ 0.875
$
0.98
10
NAVIGATING ACCOUNTING®
Figure 8 Starbucks Corporation Statements of Earnings
This figure is an excerpt from Starbuck’s 2010 annual Form 10-K report, page 39.
Item 8.
Financial Statements and Supplementary Data
STARBUCKS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)
Oct 3,
2010
Fiscal Year Ended
Net revenues:
Company-operated retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,963.5
Specialty:
Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,340.9
Foodservice and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
403.0
Sep 27,
2009
Sep 28,
2008
$8,180.1
$ 8,771.9
1,222.3
372.2
1,171.6
439.5
Total specialty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,743.9
1,594.5
1,611.1
Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales including occupancy costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Store operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,707.4
4,458.6
3,551.4
293.2
510.4
569.5
53.0
9,774.6
4,324.9
3,425.1
264.4
534.7
453.0
332.4
10,383.0
4,645.3
3,745.1
330.1
549.3
456.0
266.9
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from equity investees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,436.1
148.1
9,334.5
121.9
9,992.7
113.6
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,419.4
50.3
(32.7)
562.0
37.0
(39.1)
503.9
5.2
(53.4)
Earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,437.0
488.7
559.9
168.4
455.7
144.0
Net earnings including noncontrolling interests . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) attributable to noncontrolling interests . . . . . . . . . . . . .
948.3
2.7
391.5
0.7
311.7
(3.8)
$
945.6
$ 390.8
$
315.5
Earnings per share — basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Earnings per share — diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.27
1.24
$
$
$
$
0.43
0.43
$
731.5
741.7
0.00
Net earnings attributable to Starbucks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
744.4
764.2
0.36
0.53
0.52
738.7
745.9
$ 0.00
Source: www.starbucks.com
See Notes to Consolidated Financial Statements.
See accompanying notes in annual report
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