Income Statement

Question 1

Revenue

Answer 1

• Approach 1: Grow revenues by inputting an aggregate growth rate
• Approach 2: Segment level details and a price x volume approach

Question 2

COGS

Answer 2

Make a % gross margin (gross profit/revenue) or % COGS margin (COGS/revenue) assumption and use that back into the dollar amount of COGS

Question 3

Gross profit

Answer 3

subtotal revenue - COGS

Question 4

SG&A, R&D and other

Answer 4

Make a % margin assumption (just like COGS)

Question 5

Operating income (EBIT)

Answer 5

Subtotal Gross Profit - Operating Expenses

Question 6

Interest expense

Answer 6

Average debt x interest rate (reference from interest expense schedule)

Question 7

Interest income

Answer 7

Average cash balance (from balance sheet) x % return on cash assumption

Question 8

Other non-operating income, Net

Answer 8

Straight line prior year (or average last 3 years) result or forecast 0, depending on nature of the non-operating expenses

Question 9

Pretax income

Answer 9

Subtotal EBIT - Interest Expense - Interest income - Other non-operating income, net

Question 10

Taxes

Answer 10

Equity research/management guidance or apply the last actual year’s effective tax rate

Question 11

Net income

Answer 11

subtotal pretax income - taxes

Question 12

Average basic shares

Answer 12

Reference from in the Shares outstanding schedule

Question 13

Average diluted shares

Answer 13

• Average basic share + dilutive securities
• Calculate dilutive securities by taking the historical difference between basic and diluted shares (Usually disclosed in the EPS footnote in the 10k/10k) and add to the basic shares

Question 14

Basic EPS

Answer 14

Subtotal net income / basic shares

Question 15

Diluted EPS

Answer 15

Subtotal net income / diluted shares

Question 16

Non-recurring items

Answer 16

Forecast as 0 unless there is explicit guidance by management. Historical non-recurring items

Question 17

D&A

Answer 17

D&A is explicitly forecast in the PP&E and intangible asset schedules

Question 18

Stock based compensation (SBC)

Answer 18

SBC is explicitly forecast in the common stock and APIC schedule

Question 19

EBITDA

Answer 19

Subtotal EBIT + Non-recurring items + D&A + SBC