Money, Money, Money, Money Apparel Development 2 Objective 4.01 Financial Reports

Income Statement $$$$  An income statement, otherwise known as a profit and loss statement, is a summary of a company’s profit or loss during any one given period of time, such as a **month, three months, or one **year.

Income Statement  The income statement records all revenues for a business during this given period, as well as the operating expenses for the business.  Revenue = money coming in  Expenses = money going out

Pro-forma Income Statement  similar to a historical income statement,  except it projects the future rather than tracks the past. **  important tool for planning future business operations.  If the projections predict a downturn in profitability, you can make changes such as increasing prices or decreasing costs before these projections become reality.

Importance of Budgeting  To help meet financial goals and plans **  Business and personal

Balance Sheet  Summarizes a company's assets, liabilities and shareholders' equity at a specific point in time.  Shows how much of the assets** belong to the owner  Tells an entrepreneur what the company owns and owes, **and how much the business is worth.  **created daily at the end of each day.

Expenses  Fixed Expense (cost)  A cost that does **not change depending on production or sales levels, such as rent, property tax, insurance, mortgage, and utilities.

Expenses  Variable Expenses (costs)  Cost of labor and materials that change according to the change in the volume of production units.  The more purses you make, the more costs of supplies and hours of labor

Expenses  Total Cost =  Fixed costs + variable costs.  Helps to ** determine price required to make a profit

Cash Flow Statement  One of the most important **monthly statements  Lets you know if you have enough money to pay the bills **  Includes revenue, expenses** and profit (or loss)

Sales Forecasting  May be done after conducting a market analysis**  Know who are your target customers **  There are many pricing variables ** for new products/services

Break-Even Analysis  Used in pricing to show a business how many items must be sold to break even.

Break-even analysis  Fixed costs divided by  Selling price – variable costs  See work sheet

Markup your product  In order to make a profit, most ** businesses use a markup calculation  Formula:  Cost (of product) + markup = price (to the customer)

Markup – Work it out  What is the selling price of an item that costs $30.00 and has a markup of 50%?  Cost + markup = price  $30 + (30 x.50) = _____  $30 + $15 = $45

Markup  If you markup an item 100% above cost, the selling price is double **  If you markup 200% above cost the selling price is:  triple

Markup – and “bargain price”  Give the impression of bargain pricing by pricing something $0.99  $1.99, $5.99, $29.99  If an item costs $50 and you have a 100% markup, with a “bargain price of one cent less, what is your price?

Work it out:  $50.00 cost  100% mark up  Less 1 cent  $50 + $50 - $.01 =  $99.99

Markdown  Need to reduce inventory...  Have a “SALE”  If you take a markdown – how does it affect your break even point?  Must sell more items**

Trade Associations  Specific to the ** industry you are in  Information about suppliers, markets  Technical and general assistance  Research and technology

Sewing Associations  Home Sewing Association  American Sewing Guild 

Taxes  If a community wants to attract new business  They may offer tax break incentives