CH4. Income Statement

Income Statement 

Income statement is the report that measures the success of company operations for a given period of time.

Being used to determine profitability, investment value and creditworthiness(신용도) to predict amount, timing and uncertainty of  future cash flows.

Usefulness 

Evaluate past performance(과거 실적 평가)-comparison with the past/competitors

Predict future performance based(미래 성과 예측) on the past important trends. Past does not guarantee future(과거가 미래를 보장하지는 않음!).

Help assess the risk or uncertainty of achieving future cash flows(미래 현금흐름의 달성 위험 또는 불확실성을 평가하는 데 도움을 줌). Continued operation vs. discontinued operation

 

Limitations

Companies omit items that cannot be measured reliably(신뢰성있게 측정할 수 없는 항목 제외): expense to brand recognition, customer service, quality, etc,

 

Income(수익) numbers are affected by the accounting methods employed: straight line method(정액법) and double declining method(이중체감법).

 

Income measurement involves judgment(수익측정에는 판단이 필요하다). Useful year 10 years. Vs. 15 yeas.

 

Quality of earnings

Companies try to beat(초과하다) market expectations of income for the stock price and value of management’s compensation(보상). So, companies have incentives to manage income to meet earnings targets or  to make earnings look less risky.

Earnings management(이익관리) is the planned timing(시기 조정) of revenues, expenses, gains, and losses to smooth out earnings. Early recognition of sales sacrificing the future. Decrease current year earnings by increasing expenses: bad debts(대손충당금), restructuring(구조조정).

Quality of earnings(이익의 질) is reduced if earnings management results in information that is less useful for predicting future earnings and cash flows. Markets rely on trust(시장은 신뢰에 의존한다). Losing faith-capital market. Management to manipulation. Integrity to illusion.