1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 15-2 Analyzing an Income Statement

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes Component Percentages = component / net sales Acceptable Component Percentages Sales100% CMSnot more than 46.0% Gross Profitnot less than 54.0% Total Expensesnot more than 35% % Net Income before taxnot less than 19.0% To double check CMS + GP = 100 OR CMS, Total Exp, NI before taxes = 100 2 LESSON 15-2

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Notes Financial Ratios (EPS) Earnings per share – amount of net income after tax belonging to a single share of stock Formula: Net income after tax / # of shares outstanding (P-E ratio) Price earnings ratio – compare current price to earnings per share Formula: Market price per share / EPS 3 LESSON 15-2

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 15-2 ANALYZING AN INCOME STATEMENT SHOWING A NET LOSS page 457

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 15-2 Price-Earnings Ratio = Earnings per Share ÷ Market Price per Share Earnings per Share = Number of Shares Outstanding ÷ Net Income after Federal Income Tax FINANCIAL RATIOS page 459 Earnings per Share Price-Earnings Ratio $32.13=2,500÷$80,313.95 10.7=$32.13÷$345.00

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 15-2 TERMS REVIEW financial ratio earnings per share price-earning ratio page 460