More of this Feature • Introduction • Income Statement • Revenue / sales • Cost of Goods Sold • Gross profit • Gross margin • The first three lines • Operating Expenses • R&D Expense • SG&A Expense • Goodwill Charges • Extraordinary Events • Accounting for extraordinary events • Oper. income/margin • Interest income and expense • Interest coverage ratio • Depreciation expense • Accum. Depreciation • Straight-line Method • Accelerated and Sum of the Years' Digits Method • Dbl Declining Balance • Comparing Depr. Mths • EBITDA • Income taxes • Minority Interests - cost, equity, and consolidated methods • Unreported earnings • Continuing operations • Accounting changes • Preferred dividends • Net income applicable to common shares • Net profit margin • Basic vs. Diluted EPS • Hiding share dilution • Share repurchases • Return on Equity- ROE • Asset turnover • Return on Assets- ROA • Projecting earnings • Formulas & Calculations • Putting it together • Segment 2

Related Resources • Investing Lesson 1 • Investing Lesson 2 • Investing Lesson 3 • More Lessons

From Other Guides • Formulas, Calculation and Ratios for the Balance Sheet • Debt to Equity Ratio

Elsewhere on the Web • Financial Ratios • Financial Ratio Analysis • Formulas, Calculation and Ratios for the Balance Sheet

Formulas, Calculations and Ratios for the Income Statement
You've learned how to analyze an income statement! In segment two, we are going to look at the income statements for three companies in the S&P 500. Below is a list of the equations we have covered in this lesson. You should memorize them as soon as possible.

Gross Margin: gross profit ÷ revenue
R&D to Sales: R&D expense ÷ revenue
Operating Margin: operating income ÷ revenue [also known as operating profit margin]
Interest coverage ratio: EBIT ÷ interest expense
Net Profit Margin: net income [after taxes] ÷ revenue
Return on Equity (ROE): net profit ÷ average shareholder equity for the period
Asset Turnover: revenue ÷ average assets for period
Return on Assets: Net profit margin * asset turnover or net income ÷ total average assets for the period
¹Working Capital per Dollar of Sales: Working Capital ÷ Total Sales
¹Receivable Turnover: Net Credit Sales ÷ Average Net Receivables for the Period
¹Inventory Turnover: Cost of Goods Sold ÷ Average Inventory for the Period

¹These calculations were discussed in Investing Lesson 3: Analyzing a Balance Sheet. They require both the balance sheet and the income statement to calculate.

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