a two- to three-page paper (excluding the title and reference pages), explain th
ID: 2744629 • Letter: A
Question
a two- to three-page paper (excluding the title and reference pages), explain the purpose of an income statement and how it reflects the firm’s financial status. Include important points that an analyst would use in assessing the financial condition of the company. Also, analyze Ford Motor Company’s income statement from its 2012 Annual Report.
Your paper must be formatted according to APA style as outlined in the Ashford Writing Center, and it must include citations and references for the text and at least two scholarly sources from the Ashford University Library.
Explanation / Answer
The profit & loss statement or an income statement is the registrar of all the incomes and expenses, which a company gains or incurs within a year. In other words it maintains all the transactions that are going to benefit the company within a tenure of one year. For example, a company’s P&L statement includes revenues or sales, cost of goods sold and other operating expenses that have incurred within a particular financials year.
The objective of drawing financial statement is to provide the company’s stakeholder (such as investors, customers, suppliers) with an overview on the financial health of a company. It reveals the company’s efficiency of running the operations. Moreover, it also indicates how effective the company remained while using the outsiders’ (debtors or investors) fund to meet its daily expenditure.
During a particular financial year a company also makes investments to support its operating activities by purchasing plant & machinery, land & building and other assets. All these investments find their place on Balance Sheet, instead of income statement, because these investment are going to benefit the company for more than one year. So it is viable to keep large investments on balance sheet, where the company capitalizes these assets as they deliver benefit over the period.
Ford Motors
The leading automobile manufactures, Ford Motors’ revenues for 2012 came in at $126 billion compared to $128 billion in 2011, a decrease of 1.25% YOY (Year-over-Year). The company’s total cost and expense for this year stood at $121 billion compared to $122 billion in 2011. The primary reason for increasing expense is because the company is running its operations in different countries, which increases the overhead cost due to currency translation, as the dollars are getting stronger.
The company believes more on equity financing over debt, as the company continues to reduce its debt over the period. In 2010, the company paid an interest expense of $1.8 billion, compared to $817 million and $713 million in 2011 and 2012 respectively.
The decline in revenue has narrowed the company’s income before tax, which came in at $6 billion in 2012 compared to 6.2 billion in 2011.
Ford Motors also provides financial service to its customers for granting loans. The revenues from this head came in at $7 billion compared to $8.1 billion in the same period last year. Despite the decline in revenues the total expenses remain high at $6.4 billion compared to $6.1 billion.
The company’s bottom line has seen a significant decline, for 2012, the net income stood at $5 billion compared to 20.2 billion in 2011. In fact, the net margin has got declined by 11.30 percentage points.
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