- The second primary financial statement
is the income statement.
An income statement lists
a company's revenues minus expenses.
The difference is called net income.
The income statement is the financial statement
that people talk about all the time.
People naturally want to know
how much money did the company make?
Well let's look at an actual example of an income statement.
This is the income statement for Walmart
for the year ended January 31st, 2018.
You see revenues, expenses and down at the bottom,
you see the bottom line, the net income.
Well let's look at some of these numbers
because they're amazing.
Retail sales for Walmart for the year ended
January 31st 2018 were $495 billion.
This is the total amount that Walmart sold to you and me
and other people around the world during the year.
By the way, that's the world record.
No company in the history of the world
has ever sold more than that in one year.
No one else is even close.
By comparison, Apple sales during the same year
were 229 billion.
Now let's look at something else.
Look at Walmart's cost of sales.
If Walmart sells you something for a dollar,
what did that thing cost Walmart?
Well we can actually compute that
by calculating cost of sales divided by sales.
I did that computation and that number is 75%.
Now what that tells you is that if you go into Walmart
and spend $100 buying things,
those things cost Walmart about $75
to buy from their suppliers.
This calculation gives us some sense of Walmart's markups.
I don't think Walmart wants us to know this stuff,
but we can get it.
It's all right there in their
publicly available income statement.
Now look down at Walmart's bottom line, about $10 billion.
Let's do this calculation.
If Walmart sells you stuff for $100,
after Walmart pays for all its expenses,
the cost of sales, the operating expenses,
meaning salaries, utilities, rent and such,
the interest on its loans and income taxes,
how much profit is left for Walmart?
Well if you pay them $100,
after they pay all their expenses,
they are left with about $2.
Now that seems low.
So in order to be profitable,
Walmart must have lots of sales in each store.
This is called asset turnover
and it's one of the important financial ratios
that we'll discuss later.
Turns out you can get a lot of information
from a company's income statement.