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Accounting: The Fussy in The Income Statement 2 Views
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- 00:00
Accounting Allah shmoop the fussy in the income statement Time
- 00:06
to dive deeply End up pillow talk Here's a snapshot
- 00:09
of what their business looked like in the form of
- 00:11
an income statement three years into their happy adventure All
- 00:16
right let's cover and rough form what each of these
Full Transcript
- 00:18
lines means Starting with right here revenues will first notice
- 00:21
that revenues is described as units in thousands Well why
- 00:25
on earth would they do that Like why in thousands
- 00:29
Well if a company it's really big and has billions
- 00:32
or tens of billions in sales and they didn't produce
- 00:34
their income summary documents in thousands or even in Million's
- 00:38
All you'd see on the income statement would be a
- 00:41
whole lot of zeroes or numbers that would add more
- 00:43
confusion than clarity Note that Hill O's is bold ID
- 00:47
and pillow apse is bold ID Why Well because there
- 00:50
are essentially two contributors of revenue Toe pillow talk Those
- 00:54
two The two products carry vastly different resource needs feathers
- 00:58
cloths sewing versus computer coders and they produce very different
- 01:03
profit margins Very low and very high will The resource
- 01:07
is need for pillows revolves around the raw materials of
- 01:10
feathers the cotton cloths sewing stuffing in low cost scale
- 01:14
labor Will the people running the pillows division would look
- 01:17
across the river at the crazy high tech geeks running
- 01:20
the Pillow APS division as if they were from a
- 01:22
different planet Well the Pillow APS resource is require knowledge
- 01:26
of battery power wireless communication data storage Elektronik billing And
- 01:31
while digital marketing you know that one too that continually
- 01:34
assault the sleeper when they're vulnerable and unconscious Well the
- 01:37
Pillow APS business also is a continuous sales business seeking
- 01:41
the Celtic customers upgrades all the time Where is the
- 01:45
pillows Business is a sale that happens once and then
- 01:48
It's done when companies have two distinct divisions producing revenue
- 01:52
in this format While they typically carry the data behind
- 01:54
that revenue in different sections of the income statement Just
- 01:58
his pillow talk has presented things here For now let's
- 02:00
move down to the unit Sales lines right there know
- 02:03
that the company breaks out separately unit sales of pillows
- 02:06
from the two different ways in which it sells them
- 02:08
The wholesale channel refers to the notion that the company
- 02:11
sells large amounts of pillows to retailers who then mark
- 02:14
up the price of the pillow and sell it to
- 02:16
an end user So pillow talk is in fact blind
- 02:20
Toa who it's actually end Customer is when it sells
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pillows threw you know Macy's Nordstrom's needless Mark a Neiman
- 02:27
Marcus Bloomingdale's and you know both customers remaining at Sears
- 02:32
Well why is this a problem Well because the company
- 02:34
envisions the lion share of profits to come from its
- 02:37
APP sales not from its pillow sales So if it
- 02:40
doesn't know who its customer is well then how can
- 02:43
it up sell them premium mumblings from you know Dame
- 02:47
Judi Dench No Please send me some more information on
- 02:51
Mr Bond For this reason the company aggressively stuff paper
- 02:54
cardboard cards inside of every pillow with explicit instructions to
- 02:58
end users on how to upgrade Well Sales from the
- 03:01
website channel are in large part much easier when a
- 03:05
customer orders the product from pillow talk industries dot com
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there queried to fill out a form giving the company
- 03:11
that key information about him such that they have a
- 03:14
code to download the free pillow talk apt to their
- 03:16
phone which will then narrowcast via Bluetooth to the speaker
- 03:20
enabled device in their pillow the so Norris mumblings of
- 03:23
N Ba players opining on the economic situation in China
- 03:27
A few other things to note here The company is
- 03:30
growing sales in the wholesale channel at only a modest
- 03:33
clip conveniently there only selling pillows in what appears to
- 03:36
be exact double zero Numbers having sold 1 . 3 million in
- 03:41
eighteen there one point five million in nineteen one point
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seven and twenty a growth rate of well barely over
- 03:46
ten percent but while that growth rate is modest if
- 03:49
you skip down to the line labeled average sale price
- 03:52
of pillows from wholesale channel you'll notice that they have
- 03:56
been able to raise prices fairly aggressively selling into macy's
- 03:59
et cetera an average price of twenty bucks in eighteen
- 04:02
twenty two fifty in two thousand nineteen twenty four dollars
- 04:05
in the hindsight year so not only are they growing
- 04:07
volumes of a little over ten percent but they're also
- 04:10
increasing unit pricing over ten percent and a combination allows
- 04:13
for some twenty plus percent growth from that wholesale channel
- 04:17
well unit sales from the website channel are growing at
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a dramatically faster pace check this out with five hundred
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thousand units sold in two thousand eighteen The company exactly
- 04:26
doubled sales to a million units in nineteen and actually
- 04:29
accelerated growth to two point five million in twenty twenty
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having gone from a doubling of sales in the eighteen
- 04:35
nineteen period to growing sales at two hundred fifty percent
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in nineteen twenty But note the very different pricing dynamics
- 04:42
in the following line is the company has actually had
- 04:44
its average sales price decline at roughly seven percent a
- 04:48
year going from thirty bucks two twenty eight two twenty
- 04:50
six over this period Well then we see the revenue
- 04:52
calculations from the wholesale channel which delivered twenty six million
- 04:56
in two thousand eighteen thirty three point seven five million
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in nineteen and forty point eight million in twenty twenty
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Then the next line shows the website channel revenues growing
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from fifteen to twenty eight to sixty five million by
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twenty twenty And it's worth noting that the website channel
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Pillow revenues were a little more than half of wholesale
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revenues in two thousand eight I mean we'll buy twenty
- 05:15
twenty Website sales were over one hundred fifty percent of
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wholesale channel sales and why does it matter so much
- 05:21
that revenues come from one place or another Well because
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in the management of the company knowing where they get
- 05:27
the most bang for the buck is a key driver
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for where the company will choose to allocate its relatively
- 05:32
scarce precious resource is in buying distribution spending on marketing
- 05:37
and you know applying brain power to make the most
- 05:40
money for shareholders Lastly note that the total revenues from
- 05:43
pillow sales line right there that shows forty one million
- 05:46
growing to sixty one point seven five million growing tio
- 05:49
one hundred five point eight million in twenty twenty Yeah
- 05:52
so the above comprises revenue details from sales of feathers
- 05:55
cotton sewing and labour rather than just revenue details on
- 05:59
the sale of the actual well pillow Now we move
- 06:01
on to cover sales of the apse which were paid
- 06:04
for as a premium upgrade expense when customers chose to
- 06:07
subsequently download and pay for those abs so that they
- 06:10
could fall asleep to the calming tidings of North Korean
- 06:14
Supreme Leader Kim Jeong eun dictating foreign policy Well just
- 06:18
a CZ we did with the cotton pillows This next
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section breaks up unit sales of upgrades which produced eight
- 06:23
hundred thousand in two thousand eighteen one point two million
- 06:25
in nineteen and one point six million twenty twenty Note
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The line average upgrade It stays flat at five bucks
- 06:32
What does that mean Well it means that over a
- 06:33
broad sample of customers and different types of APS the
- 06:36
total incremental spend averaged five bucks a unit or five
- 06:40
bucks per pillow sold It's important Keep in mind that
- 06:43
some maps are very expensive while others are very cheap
- 06:46
And note also that the basic white noise sounds were
- 06:49
free there given away with pillows So total revenues from
- 06:52
upgrades go up steadily Four million six million Eight million
- 06:55
on the final line in the revenues Part of the
- 06:56
income statement shows total company revenues of AH forty five
- 06:59
million then sixty seven point seven five million one hundred
- 07:02
thirteen point eight million total combined revenues from sales of
- 07:05
pillows and sales of Pillow APS Well we'll get into
- 07:08
the above line below the line expenses in more detail
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later along with a bunch of other lines that hopefully
- 07:12
confuse you at this point And by the way if
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we can finagle it the rest of the vids in
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This course will be narrated Not by me but by
- 07:19
Dame Judi Dench Yeah We're still waiting to get word
- 07:22
from her agent but trying Hello Judy Help You know 00:07:28.31 --> [endTime] shmoop socks No
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