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Managers in a sample of managers at companies with at least 150 employees took a simple financial literacy quiz and got an average of 38% of the questions right.  How is that possible?  There are varying reasons, but none of them are good.  For those who have had limited exposure, or just a plain aversion to "the numbers", there is hope for becoming financially intelligent and increasing your credibility by speaking the language of business. This involves knowing the foundation of financials – getting back to basics.

This is part one of a four part Back to Basics in Corporate Finance series. This module focuses on the finance tool that managers look at the most when analyzing a company’s numbers – the income statement. You may have heard other names used for this statement, such as the statement of operations, consolidated statement of operations, profit & loss (P&L) statement, and statement of earnings.  Don’t let all the jargon confuse or intimidate you.  Get to know the terms and elements of this statement, step by step, and how you can affect the bottom line.  Discover where to look for assumptions and estimates, and how a company measures revenue and expenses.  Calculate key ratios to learn more about a business and whether it’s growing or shrinking its worth.

Discussions include:

  • All the financial jargon and terminology used to say virtually the same thing.
  • How to analyze revenue growth and recognition using real company numbers.
  • How finance professionals use the matching principle to estimate profit.
  • The difference between EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation, and amortization).
  • Why Warren Buffet believes cash is king.

When you know how to read an income statement, you will understand the story the financials are telling you.  This training is filled with entertaining stories about real companies, and their cautionary tales of why they failed or succeeded.

Course Series

This course is included in the following series:

4 CoursesFinancial Intelligence

  1. Module One in Financial Intelligence: The Income Statement – Back to Basics Series
  2. Module Two in Financial Intelligence: The Balance Sheet and Cash Flow Statements – Back to Basics Series
  3. Module Three in Financial Intelligence: The 4 Financial Ratio Classifications – Back to Basics Series
  4. Module Four in Financial Intelligence: Cash vs. Profit and Working Capital Strategies – Back to Basics Series

Learning Objectives

  • Identify the assumptions and estimates in an income statement
  • Discover key measures used to determine profitability of a company
  • Explore the ratios to see if your company is growing or declining

 

 

 

Last updated/reviewed: November 18, 2017

19 Reviews (52 ratings)Reviews

4
Anonymous Author
This is the second course I took by Joe Knight and his presentation skills are excellent. It's a basic course but he has valuable insights and touches on real-life examples. On another note --- (for Proformative) it would be nice if you show the correct answer to the missed question on the final exam.
4
Member's Profile
Good, I don't understand using 20% of the exam questions for a feat of memorization was much value add given all the other more fundamental issues that could have been addressed. ALso don't understand including the cash flow and balance sheet information in the supporting materials...
5
Member's Profile
Excellent course presentation. I truly enjoyed the instructor's sense of humor. It made the course easy to watch and kept me engaged unlike some of the other courses. I will be looking for more courses from Joe Knight.
5
Anonymous Author
Excellent review of income statement, p&l, statement of earnings : ) Loved the presentation method combining classroom setting with instructor presentation with slides. I could listen to Joe teach all day!
4
Anonymous Author
The content and the way how this was delivered is really great but i guess the viewers might get more interested to this training if there are more visuals used.
5
Member's Profile
This was a very lively and engaging review. Worthwhile for anyone, but especially someone new to Finance.
4
Anonymous Author
I really liked the instructor's presentation of the course. He was upbeat and easy to understand.
5
Anonymous Author
Just an excellent presentation, a pleasant course with a lot of energetic examples and dynamics.
4
Member's Profile
Very professionally shot videos. Good insightful examples, and meaningful supporting materials.
5
Member's Profile
Joe Knight has a great style of explaining the material and makes it easy to understand.
5
Anonymous Author
Great job!!! Great review of many items and very concise and easy to understand
4
Member's Profile
Did not like questions about Apple. Numbers not in front of me.
Anonymous Author
very basic --good for non-finance professionals
5
Anonymous Author
Great course. Music is a bit annoying though.
5
Member's Profile
Great course! Very informative and helpful.
5
Anonymous Author
A little too basic for cpe purposes
4
Anonymous Author
good general overview
4
Anonymous Author
It was pretty basic
4
Member's Profile
Good overview

Prerequisites

Course Complexity: Foundational

No Advanced Preparation or Prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .

10 QuestionsCourse Questions and Answers

Member's Profile

It is my understanding, from a planning process standpoint, the budget comes before the income statement. That is, the budgeted data in the income statement's line items come from the line items in the budget, appropriately rolled up into the income statement's line items. Right?

Member's Profile

Yes that is correct, a budget is just a plan so a budgeted income statement is a planned income statement.

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Member's Profile
Member's Profile

Joe,

Another question if I may. How, specifically, are income statements updated during the year? A classic example would be if the client has adopted "rolling forecasts" where every quarter a new/updated 4 quarters of forecasts are available. Thanks.

Member's Profile

Alan,
If it's a public company they are required to produce quarterly as well as annual income statements. Private companies can choose the frequency of releasing their income statements. You should find the details to know what period you are viewing at the top of each income statement. Typically they are released quarterly and annually but some do a trailing 12 month (TTM) or monthly. Forecasts are typically shown in budgets rather than an income statement and that should also be listed at the top so that you know what they are looking at.
Joe

Member's Profile

Joe,

Thanks. However, I mis-communicated. I was not asking the question apropos income statements as actuals; rather income statements as plans and how those plans are updated when key assumptions change. I gave as an example how is the income statement updated when the forecast changes mid year for the rest of the year or every quarter as the income statement is always 12 months ahead..

Alan , .

Member's Profile

Alan,
Great question, here's how I'll answer it. It depends... (the standard accounting answer). The main thing you want to see in re-budgeted or re-forecasted statements are that they are consistent. Either they don't update and they live with the original forecast or they do it on a pre-described path. Don't do it quarterly one year and switch to monthly the next. Again at the top it should clearly state what you are looking at and might even compare it to the previously forecasted statement. Good accounting requires a consistent approach in actual and forecasted statements.
Joe

Member's Profile

Joe,

I'd like to continue this discussion. However, I'd like to share an attachment or two. Any chance you could send me an email I could use? I hope so.

Mine is alanatoptimizedincomestaterment [dot] com.

Thanks,

Alan

Member's Profile

Alan,
Go ahead and email them to mailatbusiness-literacy [dot] com.
Joe

Course Syllabus
INTRODUCTION AND OVERVIEW
  6:58The Basics of Finance and Accounting
  10:28The Income Statement
  11:57The Matching Principle
  8:10Analysis
SUPPORTING MATERIALS
  PDFWorkbook: The Income Statement
  PDFThe Income Statement Study Guide/Glossary
REVIEW & TEST
  quizREVIEW QUESTIONS
 examFINAL EXAM