Simple Income Statement Tutorial - Profit and Loss Statement Explained

TL;DR

This video explains the components of Nike's income statement and how it can be used to make investment decisions.

Transcript

in this video we're going to walk through an income statement and look at what each line item is and why it's important and how can we use it to make investment decisions in this example we're going to use the annual statements of Nike now keep in mind here that each of these numbers are in thousands you can see that right here so look here and tha... Read More

Key Insights

• 🛀 Nike's revenue has shown consistent annual growth over the past few years.
• 🇨🇷 The cost of revenue accounts for a significant portion of Nike's revenue, indicating the importance of efficient production processes.
• ❓ Nike's operating margin has remained stable, indicating consistent profitability.
• 👨‍🔬 Nike categorizes research and development expenses under cost of sales in its financial reports.
• 🚱 The absence of non-recurring expenses and extraordinary items suggests stability in Nike's financial performance.
• 🪐 Net income from continuing operations is crucial for common shareholders as it determines potential reinvestment or dividend payments.
• 🧑‍⚕️ Interest expense represents the cost of borrowing for Nike, which can impact the company's financial health.

Questions & Answers

Q: How does Nike's revenue in 2017 compare to the previous year?

Nike's revenue in 2017 increased by 6% compared to the previous year, indicating positive annual growth.

Q: What does the cost of revenue include?

The cost of revenue includes expenses directly related to the production of Nike's products, such as materials and shipping.

Q: What is Nike's gross profit margin?

Nike's gross profit margin is approximately 45% of its revenue, indicating how much profit the company makes after deducting the cost of revenue.

Q: Does Nike have any expenses for research and development?

No, Nike categorizes research and development expenses under cost of sales, according to their financial reports.

Q: What does selling, general, and administrative expenses include?

Selling, general, and administrative expenses account for administrative costs and marketing expenses, such as advertising and sponsorships.

Q: What do non-recurring expenses and extraordinary items mean?

Non-recurring expenses are costs that are not expected to happen again, while extraordinary items refer to unusual or infrequent events that impact a company's financials.

Q: What is Nike's operating margin?

Nike's operating margin, calculated by dividing operating income by revenue, has been consistent over the past few years.

Q: What is the significance of net income from continuing operations?

Net income from continuing operations represents the profit available to common shareholders and can be used for reinvestment, dividends, or stock repurchases.

Summary & Key Takeaways

• Nike's fiscal year ends on May 31st, and the income statement reflects the company's performance from June 1st through May 31st.

• In 2017, Nike had $34.35 billion in revenue, a 6% increase compared to the previous year.

• The cost of revenue, which includes production costs, accounts for approximately 55% of Nike's revenue.