Revenue and Expenses

Jacqueline Gagnon

4 Revenue and Expenses

Income Statement Fundamentals

Jacqueline Gagnon

An eye in a circle—the 'see' section of the think-see-do approach. A gear and a pencil in a circle—the 'do' section of the think-see-do approach.

Lastly, let’s calculate profitability ratios for a real company. Check out lululemon athletica’s income statement on page 46 of their annual report—here is a link: Lululemon Annual Report 2022.

I’ll calculate each ratio for the fiscal year ended 30 January 2022. You calculate ratios for the year ended 29 January 2023, in the boxes provided for your work. Round all figures to the nearest whole number. Here we go…

Lululemon’s 2022 Gross Margin: $\begin{equation*} \frac{\text{2022 Gross Profit}}{\text{2022 Sales}}\;=\;\frac{\text{\$\,3,608,565}}{\text{\$\,6,256,617}}\;=\;\bf{58\%} \end{equation*}$; This means that 58% of sales revenue is available to pay operating and additional expenses and provide a return to shareholders.
Lululemon’s 2023 Gross Margin: $\begin{equation*} \frac{\textbf{(A)}}{\textbf{(B)}}=\frac{\textbf{\$ (C)}}{\textbf{\$ (D)}}=\textbf{(E)\%} \end{equation*}$

Lululemon’s 2022 Operating Margin: $\begin{equation*} \frac{\text{2022 Operating Income}}{\text{2022 Sales}}\;=\;\frac{\$\,1,333,869}{\$\,6,256,617}\;=\;\bf{21\%} \end{equation*}$; This means that 21% of sales revenue is available to pay non-operating expenses and income tax, and provide a return to shareholders.
Lululemon’s 2023 Operating Margin: $\begin{equation*} \frac{\textbf{(A)}}{\textbf{(B)}}=\frac{\textbf{\$ (C)}}{\textbf{\$ (D)}}=\textbf{(E)\%} \end{equation*}$

Lululemon’s 2022 Profit Margin: $\begin{equation*} \frac{\text{2022 Net Income}}{\text{2022 Sales}}\;=\;\frac{\$\,975,322}{\$\,6,256,617}\;=\;\bf{16\%} \end{equation*}$; This means that 16% of sales revenue is available to shareholders as a return on their investment. Makes sense that higher margins are preferred, right?
Lululemon’s 2023 Profit Margin: $\begin{equation*} \frac{\textbf{(A)}}{\textbf{(B)}}=\frac{\textbf{\$ (C)}}{\textbf{\$ (D)}}=\textbf{(E)\%} \end{equation*}$

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4 Revenue and Expenses

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