Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash. 1. Construct Brandywine’s 2007 income statement.
An income statement, also known as a profit and loss statement shows how much money a company has spent over a period of time. It also shows the costs and expenses that are associated with earning that revenue. It is an important measure of the company’s profitability. The simple building blocks of a net income formula are revenues minus expenses equal net income. Brandywine Homecare 2007 Income Statement
Total Revenue: $12,000,000
Depreciation Expense: $1,500,000
Total Expenses: $10,500,000
Net Income: $1,500,000
2. What were Brandywine’s 2007 net income, total profit margin, and cash flow?
As stated above, net income is the company’s total earnings. Net income = Total revenue – Expenses
Net Income = $12,000.000 - $1,500,000 = $1,500,000
Brandywine’s net income for 2007 was $1,500,000.
A profit margin is the difference between sales generated and the cost to produce each of the units sold. A profit margin refers to a measure of profitability and is an indicator of a company’s pricing strategy and how well it controls costs. Businesses pay especially close attention to profit margins because they can provide valuable information as to the financial condition of the company. Profit margins are presented in percentage terms. Total Profit Margin = Net Income/ Total Revenues
Total Profit Margin= 1,500,000 / 12,000,000 = .125 = 12.5%
Brandywine’s total profit margin is 12.5%. This shows that Brandywine make 12.5 cents on every dollar of total revenues.
A cash flow, also known as a cash flow statement simply reports the inflows and outflows of cash in a company. Cash...
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