INCOME STATEMENT
In my previous article, we established a company with you and then made the opening balance sheet of this company. Of course, now that I have established the company, I have to start operating and start selling raw meatballs. I know that my profit margin is 25% in the sale of raw meatballs. I made a budget for a year and bought 40 thousand TL raw meatballs each month and set a target to sell it for 50 thousand TL since my profit margin was 25%. In line with my goals, if we consider that a year is twelve months, we buy 12x40.000 TL, 480 thousand TL, raw meatballs until the end of the year and sell the raw meatball for 12x50.000 TL, 600 thousand TL, and make a profit of 12x10.000 TL, or 120 thousand TL. I know I have to. I founded the company, but since I cannot work in this company alone, I decided to hire a salesperson. Considering that my own salary is 3,000 TL and the salary of the employee I take with me is 2,000 TL, it should not be difficult to guess that there will be a total wage of 60,000 TL per year.
I anticipated that the company I founded will also have insurance and membership expenses and they will cost 10,000 TL. Now, I decided to take a loan of 100,000 TL from the bank in order not to be stuck in cash. I agreed with the bank that the repayment method will be the interest on the principal in the first year and the entire principal in the second year. Assuming the annual interest rate is 10%, it is not difficult to predict that the interest I will pay in the first year will be 10,000 TL. I also know that as a result of these transactions, I will pay 20% of the net profit I get in a year as corporate tax.
In the light of this information, let's start creating our income statement.
Sales-cost of goods sold = Gross Profit
Gross profit-operating expenses (fees + insurance and membership expenses in the example above) = Operating Profit
Operating Profit-interest expense = Profit Before Tax
Profit before tax- tax expense (Profit before tax * 20%) = Net profit
In the light of the above information, we created our income statement and earned 32,000 TL as a yearly net profit. Of course, this income statement is a very simple income statement. Although we know that the income statements are more detailed, we explained the income statement as simple as possible in order to explain the stock valuation very simply. Otherwise, a separate cost of goods sold table is made for the cost of goods sold item and the costs are calculated accordingly. While the Simple Expression Income table is shaped as above, let's take a look at how the balance sheet has been shaped.
While all of the 100,000 TL I withdrawn from the bank in the balance sheet were waiting at the cash desk, which I received a loan to regulate my cash flow at the beginning of the period, the profit I earned from the sales of raw meatballs (Gross profit-operating expenses-interest expenses-tax expenses) and 40,000 TL I deposited in the opening balance sheet for raw meatball I know that my stocks (since I sold them all) will also be in cash in the cash account.
I also know that the opening balance sheet is currently 10,000 TL in the cash account.
Therefore, the net profit to the right of the balance sheet, the long-term debt and the stocks to the left of the balance sheet will all accumulate in the cash account.
The remaining balance when we subtract our liabilities from our assets gives equity. Since our company has an asset of 432 thousand TL and a debt of 100 thousand TL, our equity capital becomes 332 thousand TL. We initially established this company for 300 thousand TL. Since we had a net profit of 32 thousand TL at the end of the first year, we increased our equity to 332,000 TL. That is to say, the main factor that increases the equity of a company is the net profit item. Therefore, any development that will increase net profit will have a serious return potential on company stocks. In this article, we created our income statement and learned how the balance sheet can be shaped as a result of the income statement.
In the next article, we will talk about what the share price of our Yatırım Çiğ Köfte A.Ş., which has made a net profit of 32,000 TL, should be.
AUTHOR:
Yilmaz Altun
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