The Income Statement

Quick reference

• 00:04 We've done our timing.
• 00:05 What's next?
• 00:07 Remember this?
• 00:10 This was our order of working through a model.
• 00:13 We said, look, we need to look at the operational part first of all.
• 00:16 We do revenue, then COX, then OPX, then CAPX.
• 00:20 Then look at the working capital adjustments, the debtors,
• 00:22 the creditors etc.
• 00:23 And we're plowing through to get to the financial statements,
• 00:27 the income statement, the balance sheet, and the cashflow.
• 00:30 Below I've got my three little orange financial statement types.
• 00:34 The income statement, cash flow statement, and balance sheet.
• 00:36 And I said there was an order to this, I called it the Goldilocks analogy.
• 00:40 We've got baby bear, the income statement, Mommy bear, the cash flow statement, and
• 00:45 balance sheet, the daddy bear of them all.
• 00:47 And this should be the order we built them in, so let's just think about that.
• 00:52 We've got here a PNL, this may not always be your income statement, but
• 00:57 this is the order we should build in.
• 00:59 We said, let's do revenue first.
• 01:01 Let's do cost of goods sold second.
• 01:02 Let's do OPEX third, etc.
• 01:04 Do you see we're building a PNL naturally?
• 01:07 So that's the order we should attack it.
• 01:10 And once we finish that, making sure that the balance sheet balances at all times.
• 01:14 We can then move on to Mommy bear, the cash flow statement, and
• 01:17 work through whatever we haven't done so far.
• 01:20 But some of them will already be done.
• 01:23 But we won't need to revisit the income statement again.
• 01:26 And finally, once the cashflow statement is completed, we'll actually be able to do
• 01:30 the balance sheet and finish off anything that's missing there.
• 01:33 So that's the order, income statement, cashflow statement, balance sheet.
• 01:38 Let's start by building an income statement then.
• 01:41 Building an income statement into a model that we're preparing isn't that difficult.
• 01:46 First, we head for the timing sheet again.
• 01:49 So it's before the table of contents, timing, here's the timing sheet.
• 01:54 And what I'm going to do, is I'm going to make a copy of this.
• 01:57 Hold all the Ctrls down and do this, and I'm going to call this, income statement.
• 02:03 I'm just renaming it.
• 02:05 Now, what happens to Cell A1 when I press Enter?
• 02:08 So we got that wonderful formula we chosen before, it automatically updated yet.
• 02:14 There's some things we need to change.
• 02:16 We don't need this stuff down here, that can all go.
• 02:20 We're gonna be linking this back to the timing sheet, so I'm gonna go here,
• 02:25 equals, this goes to my timing sheet cell.
• 02:27 A sent copy that down, it's all formatted horribly, that's okay.
• 02:32 I take that, I put it in here and I copy it across.
• 02:38 I don't need this.
• 02:40 And I certainly don't need all this stuff down here.
• 02:43 Now it maybe when we copied, we made some duplicates of range answers.
• 02:47 It's always a good idea to go to the formulas tab and
• 02:49 name manager just in case that anything's here.
• 02:52 So, let's have a look what's going on?
• 02:55 We may have created here some errors.
• 02:57 So let's go filter Names with errors?
• 03:00 Yes, we made some duplicates.
• 03:01 Member, we don't want range names.
• 03:04 Highlight all those.
• 03:05 Delete.
• 03:06 You are the weakest link.
• 03:07 Goodbye.
• 03:09 I'm gonna to call this an income statement.
• 03:12 I'm not going to type in income statement here.
• 03:15 If I do that, that's a lot of characters, and that takes up bytes.
• 03:19 In the full size, in send go delete, make it equal to cell A1,
• 03:23 same effect but smaller, as a result.
• 03:28 I don't need this either, so let's get rid of the actual heading.
• 03:31 I'm just going to put an income statement in, and so
• 03:33 you can see which the Gridlines all.
• 03:36 Next, the view tab on the ribbon and I'm clicking on Gridlines here, just so
• 03:39 that it's easier to follow.
• 03:42 So I've got things that I actually need to do.
• 03:45 I think to sort of not have it quite as narrow as this necessarily,
• 03:50 you can make these columns a little wider if you think I need this one to be wider.
• 03:55 So I'm gonna make this fourth column fit longer so
• 03:56 it can actually put all this stuff in here.
• 03:59 And we put in here our income statement, our chart of accounts.
• 04:02 Which you get from your management information system.
• 04:05 I'm gonna go for revenue.
• 04:09 Cost of goods sold and that will mean money grows profit.
• 04:17 And I'm gonna make that bold because it's a subtotal.
• 04:19 Now, we are going to have some inventory in this particular model, so
• 04:24 this is where it actually deviates from as extended chart of accounts,
• 04:29 we're going to have wastage and we're going to have Operating Expenditure.
• 04:35 I've done it like this deliberately.
• 04:37 I've put Operating Expenses with a capital O and a capital E.
• 04:40 You need to get your cases right.
• 04:41 How you're going to do this: once your title gets in,
• 04:44 you can get confused quite quickly.
• 04:47 Typically, I recommend actually making operating expenditures in lower case.
• 04:51 Case because if you do that you'll actually spell it correctly
• 04:54 as well would help.
• 04:57 By doing this, what you've actually got is a standard way of writing everything.
• 05:01 You're not getting confused by I should have capitalize this or not.
• 05:05 Next, earnings before interest tax depreciation amortization.
• 05:10 That's EBITDA and then we'll do the rest.
• 05:13 So by the magic invested in me, let's just go click our fingers and
• 05:17 make the rest of them happen.
• 05:19 There you go, magic happens.
• 05:22 We've actually put the rest in.
• 05:24 We've got depreciation, interest expense, tax expense, and
• 05:27 these totals, looking good.
• 05:30 Now, we need to concentrate on where we're going to put units.
• 05:34 We don't necessarily need them on an output sheet because we can just say,
• 05:37 all items are expressed in dollars, thousands unless stated otherwise.
• 05:42 But I want to show you so we're gonna go through.
• 05:44 Gonna make them con-generate, a little less wide.
• 05:47 And this is going to be equal to currency.
• 05:51 So that's currency, remember I showed you about that before.
• 05:54 And we were working in US dollars.
• 05:56 So, I'm gonna go here to the Home tab > Cell Style, and I've got in here Units.
• 06:02 And that's my actual units, I'm gonna copy that into all the places I need it.
• 06:08 So I'm just gonna Copy Paste.
• 06:13 Holding the control button down to select these.
• 06:17 So I've got all those in here, brilliant.
• 06:19 Now, the last thing I want to do is I want to put in the subtitles.
• 06:23 So, I want to actually have all these numbers formatted.
• 06:26 So that I can just type numbers in, I don't have to keep coming back and
• 06:28 styling them.
• 06:29 So I'm gonna go in here, cell styles.
• 06:31 I'm going to use my number style that I've set up here.
• 06:33 Yep, and then this is going to be a row total.
• 06:36 It's gonna be equal to the sum, open brackets for the two rows above.
• 06:42 And I'm gonna to make it bold and give it a top border and copy to cost.
• 06:50 Similarly, I need to put one in for IBITDA here, so I can copy this formatting down,
• 06:55 Ctrl+C.
• 06:55 Paste it down to here, paste threshold, Ctrl+V.
• 07:00 We put the actual formula is wrong, it's summing row 17 and 18 only,
• 07:04 I need it to include row 15 as well.
• 07:06 So that's okay, I'll just put it click in here and go J-15 as well.
• 07:11 And this copy that across.
• 07:15 And we need to continue,so I need to go and copy these.
• 07:18 And so again, by the magic invested in me, it's time to click fingers again.
• 07:23 And yet again, magic happens.
• 07:26 We've got how the subtitle's all in here.
• 07:29 So I've got this in and
• 07:30 use the plus rather than the sum function here to shut top.
• 07:33 And each of these assumes that the expense is all going to be put in this negative
• 07:38 numbers.
• 07:39 I'll have a total at the bottom from that profit after tax.
• 07:41 And that's it, that's how we set up our income statement.
• 07:44 It's all ready to go.
• 07:45 We have our actual, if I type a number in here, for instance.
• 07:49 Seven, you can see it flows through.
• 07:51 That's what we'll do.
• 07:52 We're getting ready to put all our numbers in when we build our model.
• 07:57 Okay, that's the income statement.
• 07:59 One down, two to go.

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