The MBA Math Monday series helps prospective MBA students to self assess their proficiency with the quantitative building blocks of the MBA first year curriculum.
The first and second MBA Math accounting exercises examined the balance sheet, which represents the sources and uses of a firm’s funds at a snapshot in time. The first exercise focused on balance sheet structure and logic. The second exercise focused on how transactions during a period in time must be appropriately processed to create a new balance sheet at the end of the period.
This exercise introduces the income statement, which is a financial statement that shows a firm’s revenues and expenses during a period of time, typically a quarter or a year. The proverbial “bottom line” in business is the profit or loss at the bottom of the income statement.
Before you can interpret an income statement, you need to understand how its structure flows from revenue at the top to profit or loss at the bottom, with various categories of cost in between.
Suppose Lightspeed Industries has the following revenue and expenses (listed in alphabetical order) for 2008:
Revenues of $8,800,000
Cost of Goods Sold of $2,640,000
Depreciation Expenses of $1,200,000
Income Taxes of $1,452,000
Interest Expenses of $50,000
Other Expenses of $400,000
Sales, General, & Administrative Expenses of $880,000
Create an income statement with amounts in thousands
What is the value of Pre-Tax Income?
Solution (with audio commentary): click here