Why is the Income Statement Important & How Can It Help You Achieve Your Goals

Chris Haroun
A free video tutorial from Chris Haroun
Award Winning MBA Professor, Venture Capitalist and Author.
4.5 instructor rating • 54 courses • 1,025,442 students

Lecture description

Why is the income statement important and how can it help you achieve your goals? Once you understand the income statement, balance sheet and cash flow statements (all explained in this course), then we can move on to the modeling and then the valuation section of this course. 

Learn more from the full course

Introduction to Finance, Accounting, Modeling and Valuation

Learn Finance & Accounting from Scratch by an Award Winning MBA Professor, Ivy Grad, worked @ Goldman & VC

04:18:28 of on-demand video • Updated April 2021

  • #1 Best Selling Accounting Course on Udemy (Learn Finance and Accounting the Easy Way)!​
  • Analyze and understand an income statement (even if you have no experience with income statements).
  • Analyze and understand a balance sheet (even if you have no experience with balance sheets).
  • Analyze and understand a cash flow statement (even if you have no experience with cash flow statements).
  • Understand and use modeling best practices so you can create financial models.
  • Know where to get data in order to build a financial model (in depth understanding of identifying and using/navigating the best free websites and sources to build your financial model)!
  • Create a financial model (projecting the future) for an income statement.
  • Create a financial model (projecting the future) for a balance sheet.
  • Create a financial model (projecting the future) for a cash flow statement.
  • Understand valuation best practices so you can create target prices based on your financial models.
  • How to use Discounted Cash Flow (DCF) and how to create the Weighted Average Cost of Capital and Terminal values in order to pick target prices.
  • How to use P/E in order to pick target prices.
  • How to use P/R in order to pick target prices.
  • Other valuation methodologies, including EV/Sales, EV/EBITDA, P/B, EV/FCF, etc.
  • Come up with a target price based on an average of several different valuation methodologies.
  • Analyze the total addressable market for a company you are doing research on.
  • Analyze financial statements using profitability ratios: Gross Margin (Cost of Goods Sold / Revenue), Operating Margin (EBITDA/ Revenue), Net Profit Margin (Net Income / Revenue), Return on Assets (Net Income / Assets) and Return on Equity (Net Income / Equity).
  • Analyze financial statements using debt and inventory formulas: Debt to Assets (Total Liabilities/ Total Assets), Debt to Equity (Total Liabilities/ Total Equity), Interest Coverage Ratio (EBITDA / Interest) and Inventory Days on Hand (Inventory / Cost of Good Sold) * 365.
  • Analyze and compare companies using the following formulas: Price / Earnings, PEG (P/E / Growth), Price / Revenue, EV/EBITDA, EV/Sales, Price/Free Cash Flow and Price / Book.
  • We will do an extremely in depth professional accounting, finance, modeling and valuation analysis of LinkedIn using the accounting and finance methodologies used in this course (you will also have many exercises to complete that will help you understand accounting, finance, valuation and modeling).
English (upbeat music) -: Let's talk about the income statement. But hold on a second. I'm gonna put the income statement on hold for a couple of slides. I want to give you a very quick accounting introduction. There's three financial statements that we'll be looking at. There's the balance sheet, which tells you what do we own? Then there's the income statement that tells you how much money do you make? And then there's the cashflow statement. It... hold on a second. How much money do I really make? See, the income statement doesn't tell you how much more cash you're getting in your pocket. It's actually not accurate. And so we need a third financial statement called the cashflow statement, and that will tell you how much you really have cash-wise, and it will basically look at the income statement and correct it for you. I want to put that on your radar screen. We'll come back to that shortly. Okay? Great. Back to the income statement. So by the end of this section, you will understand why an income statement is really important and how to analyze the income statement so that you can create and understand financial modeling. So we're gonna do an accounting background for the next three sections: the income statement, the balance sheet, and the cashflow statement. And then once we tie all that together, then we can model companies. Okay, let's get started with the income statement. So in this section, we're going to talk about what is the income statement and what purpose does it have? We're also going to talk about why we create the income statement. And the reason is, if you don't create an income statement and model into the future, you'll never know how much a company is worth and what the target price is gonna be. And the way we're going to do this is we're going to go through a number of different Excel spreadsheet examples.