The terms ‘net income’ and ‘total assets’ have been defined in this write-up along with notification of the financial statements where these terms are found. Further, the components of those financial statements, namely the income statement and balance sheet, have been described in detail hereunder.
Net income is also called pure profit. This is the portion of revenue that remains after meeting the cost of sales, finance expenses and taxes payable on the income. Net income is normally measured by ‘net profit margin’, which is ‘the percentage of each sales dollar remaining all costs and expenses, including interest, taxes, and preferred stock dividend, have been deducted.’ (Lawrence J. Gitman, page 67).
The net income of Landry’s Restaurants Inc. for the years 2003, 2002, and 2001 are $45901, $41522, and $26920. This net income is computed through the financial statement called ‘Income Statement’. There are two approaches that are commonly used in preparing an income statement. Companies that have a primary source of revenues with costs that can easily be identified as related to those revenues prepare a multiple-step income statement. A company that earns significant revenue from both sale of goods and the performance of services would not easily be able to provide useable information about the cost of sales. As a result, such a company would prepare a single-step income statement. Regardless of which of the two formats is used, the amount reported as net income is the same. Under the income statement, the net income is calculated using different sections, each providing information about a different aspect of the business. The components of such a statement are that provide information about revenue, gross profits, operating profits (also called earnings before interest and taxes), profits from discontinued operations, extraordinary items, section showing the cumulative effect of change in accounting principles, and net income.
‘Total assets’ of an entity comprise current assets and non-current assets that are financed by the debt capital or equity capital representing total liabilities of the entity. Total assets are properties and investments owned by the entity at a particular point in time. The value of total assets is found in the financial statement of an entity called ‘balance Sheet’. ‘The balance sheet is a financial statement that shows the financial position of the business as of a fixed date.’(Linda Pinson, page101). Total assets of Landry’s Restaurants Inc. as on 31.12.2003, 31.12.2002, and 31.12.2001 are $ 1102785,$933015, and $690171.
The components of a balance sheet are Assets, Liabilities and Capital. Assets are the properties and other capital investments that are used to earn income for the business of the entity. Liabilities of an entity are the loans, payables and other dues that are used by the entity for partly financing the total assets of the entity. Capital or equity represents the investment of the owners (called shareholders in the case of a company) into the business of the entity. Capital and other liabilities are used for financing the total assets of the entity. Total assets are used and exploited for the purpose of operations of the entity to earn income for those who have invested into the business of the entity.
- Lawrence J. Gitman, Principles of Managerial Finance, Eleventh edition, Pearson Education, 2006, page 67
- Linda Pinson, Anatomy of a business, aka associates, 2008, page101