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Your friend the income statement.

With deadlines looming, customers to call on and staff to manage, analyzing the company's financial statements probably isn't high on your priority list as an agrimarketing professional. Plus, it's possible that you are in a sales and marketing role today specifically to avoid anything resembling a balance sheet or income statement--and that's OK. Let accountants worry about depreciation schedules, deductible expenses and loss carryovers (insert yawn here).

Instead, continue executing your creative work and focus on how you can use the financial statements when the accounting is done. Ultimately, they provide valuable insight for you to make informed management decisions.

Let's consider one financial report, the income statement, also known as the profit-and-loss (P&L) statement. This report provides a sense of how well the company created and captured value from its customers during a specific period of time.

Reading a P&L statement as a non-financial manager can sometimes be like learning a new language. The following explanations should help as you review the numbers, derive their meaning and turn your analysis into actions.


Each P&L statement begins with total revenue listed at the top. This number reflects the total amount of value created and captured from customers. Your focus in an agri-marketing role is to look for opportunities to create more value for customers.


Just below revenue is a line for the cost of goods sold, which results from the material, labor and allocated overhead needed to bring inventories to their present location and condition. These are considered variable costs because businesses only incur them if products and/or services are sold.


To determine the total value that a company added above its cost of inputs, managers can calculate the firm's gross margin percent (just divide the gross profit margin by revenue). This percentage allows you to compare your business to peers, but remember that this percentage will vary significantly by location in the supply chain (e.g., food processors vs. grocery stores).


Sales, general and administrative costs represent the company's fixed costs or overhead. This is where costs related to management, marketing and employees reside. Managers can reduce these costs by optimizing workflow processes.


The numbers listed for EBITDA are the cash flows available to pay for the company's physical and financial capital needs, such as lenders, the Internal Revenue Service or equity holders.


After knocking off a few letters from EBITDA, accountants end up at the company's net income. This money belongs to equity holders, who are last to receive compensation. In poor years, they don't receive compensation. In significantly poor years, they lose money. However, they enjoy the upside of boom years.

Looking at the P&L statement illustrates the money coming in (sales) versus the expenses required to generate those sales. It gives you a sense of what is working and what you need to reevaluate Luckily, you don't have to know how to create financial statements, but taking some time away from your creative work or calling on customers to analyze them can help you understand whether the campaigns you are executing are effective for your company.


If you are interested in learning more about using financial statements to make informed decisions, consider attending the Agribusiness Finance for Non-Finance Managers seminar. You will improve your finance skill set by learning how to analyze and extract data from P&L statements, balance sheets and cash flow statements.
Profit and Loss Statement      Three Months Ended
                                    March 31

                                2012        2011

Revenue                   $1,128,118  $17118,167

Cost of                       -8,129      -4,783
good sold

Gross profit               1,119,989   1,113,384

Fixed Costs

Research & development       154,146     153,329

Sales & marketing             13,831       8,668

General & administrative     103,145     102,025

Total fixed costs            271,122     264,022

Interest income                  126         976

Net income                   848,993     850,338

Mike Gunderson is a faculty member with the Center for Food and Agricultural Business at Purdue University. He can be reached at mag79@ufledu.

Megan Sheridan is the marketing director at the Center for Food and Agricultural Business. She can be reached at
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Title Annotation:Insights from Purdue University
Author:Gunderson, Mike; Sheridan, Megan
Publication:Agri Marketing
Geographic Code:1USA
Date:May 1, 2012
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