You've learned how to analyze an income statement! In the next couple of pages, we are going to look at the income statements for some companies. Below is a list of the equations we have covered in this lesson. You should memorize them because they will serve you well in your career.
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.
This page is part of Investing Lesson 4 - How to Read an Income Statement. To go back to the beginning, see the Table of Contents.