The Income Statement

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Chapters in this video

  1. 0:00 Why the income statement tells the story over time
  2. 1:02 Top line revenue versus bottom line net income
  3. 2:36 EBITDA, EBIT, and EBT down the waterfall
  4. 4:43 Basic EPS versus fully diluted EPS
  5. 6:04 Why fully diluted can never exceed basic EPS
  6. 6:52 Rapid-fire exam recap

What this video covers

  • Why "top line" means revenue and "bottom line" means net income, and how the exam swaps the slang for the formal names to bait you
  • How the income statement waterfall flows from revenue through cost of goods sold (COGS), operating expenses, interest, and taxes down to net income
  • What earnings before interest, taxes, depreciation, and amortization (EBITDA) actually measures, and why it is a proxy for operating cash flow but is NOT the same as cash flow from operations
  • Why interest expense is a financing cost that sits below operating income (EBIT), not an operating expense
  • How basic EPS (net income divided by weighted average shares outstanding) differs from fully diluted EPS, and why fully diluted is the most conservative figure
  • The full dilution hit list: convertible bonds, convertible preferred stock, stock options, and warrants
  • Why fully diluted EPS is always equal to or lower than basic EPS, never higher

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