- Now the second primary financial statement
is the income statement, and it can be summarized
as revenues minus expenses equal net income.
Now we use the terms revenue and expenses all the time,
so let's make sure we know what these words mean.
In an accounting context, revenue means
the amount of assets generated in doing business.
And different companies generate assets in different ways.
Walmart, for example, generates assets by putting things
on shelves that you and I buy.
Walmart's inventory, we pay Walmart for those things.
That's how Walmart creates assets.
Microsoft creates assets by creating software and hardware
that you and I, then, buy,
and we pay Microsoft for those things.
Disney has consumer products.
They have cruises, they have theme parks.
We pay to use those things or to buy those products,
and that's how Disney generates assets.
Revenue is the amount of assets generated
in doing business and hopefully, the assets generated
are more than the assets consumed.
Expenses are the amount of assets
consumed in doing business.
For example, Microsoft consumes assets
by paying programmers, by paying for equipment.
Walmart consumes assets by buying the inventory
that it sells to you and me and paying rent,
by seeing its building depreciate,
and by paying its employees.
McDonald's consumes resources by buying food,
buying paper, by renting facilities.
In each case, the revenues, hopefully, are more
than the expenses that are consumed in generating business.
All of this is put together in the income statement.
Revenues minus expenses equal net income.
Now, net income is a very sophisticated economic measure.
It's the net amount of assets generated by a business
through its business operations.
This is the income statement.
So let's look at some income statement examples
for some companies of which you've heard.
Exxon Mobil, Delta, Microsoft, Ford, and Walmart.
All of these companies have income statements
that they release to the public on a regular basis.
Now take a look at these.
First of all, you see a difference in scale.
Walmart had sales of over half a trillion dollars.
Exxon Mobil, sales of a mere 290 billion.
How to compare the performance of these two companies.
Look at Delta and Ford.
Their net incomes are about the same,
within a hundred million dollars of one another.
And yet, Ford's sales are almost four times
as large as Delta's.
And Microsoft with the second lowest revenue number
on the list has the second highest net income on the list.
How does that happen?
Well, that's the kind of thing we learn
through doing corporate financial statement analysis.