• Shockproof! Training
  • 1.866.237.7228
  • Non-Member

    Membership Check

    Please enter your email address and we will check to see if a membership exists for your organization.

    Check Cancel
  • Account
    • Sign in

      If you have an account, please enter your login information.

      Sign-in

      Forgot your password?

      Please provide your email address and we'll email you a reminder.

      Send it to me!

      Subscribe

      Please provide the information below to receive our mailings.

      Subscribe!
      Account Options
      1. Sign In... enter the resource center
      2. Forgot password?... memories fade
      3. Subscribe... to receive our mailings
      4. Contact us... if you have any questions, just ask
      5. Create a User Account* requires membership
  • Sign-in
  • Home
  • Products
  • Learning Paths
  • Calendar
  • Pricing
  • Communications
  • Contact Us
  • Help
  • About Us
  • Membership Check
  • Account

Instructor Blog - Credit College - Commercial Business

  1. Home
  2. Communications
  3. Instructor Blog
  4. Credit College - Commercial Business

Financial Statement Review and Ratio Analysis(#2 in series)


  • admin

  • 4/9/2020 10:00:14 PM

  • 376

  • Credit College - Commercial Business

Q: To arrive at the gross margin and SG&A%, why did you add depreciation / amortization in the Gross Margin computation and subtract depreciation / amortization in the SG&A% computation?

A: The effect of the non-cash charges – depreciation and amortization – is excluded from the calculation of both the Gross Margin and SG&A%.

With respect to computing the Gross Margin, there are two approaches that yield the same result. One is to add depreciation expense to reported Gross Profit since, if depreciation expense is included in Cost of Goods Sold, reported Gross Profit needs to be increased by the amount of depreciation expense in reaching Gross Profit excluding depreciation expense. In the case of Total Coverage, Inc., no depreciation expense was reported as a cost element in Cost of Goods Sold, and so we did not have to add back depreciation expense to the reported Gross Profit.

The other approach is to add all costs reported as cost of goods sold expenses, except for depreciation expense, and subtract this total from sales to arrive at Gross Profit excluding depreciation expenses. Once we have this amount, we divide by Sales to get the Gross Margin. This is essentially the same as adding depreciation expense to Gross Profit and dividing by Sales.

With respect to SG&A%, we subtract depreciation expense from Total Operating Expenses to get SG&A excluding depreciation expense. Once we have adjusted Operating Profit, we divide by Sales to get SG&A%.

Course overview: Financial Statement Review and Ratio Analysis

Categories
  • Accounting Essentials(93)
  • Business Income Tax Returns(118)
  • Commercial Real Estate(30)
  • Communications(10)
  • Contractors(43)
  • Courses(1)
  • Covenants(7)
  • Credit Basics(80)
  • Credit College - Cash Flow(9)
  • Credit College - Commercial Business(195)
  • Credit College - CRE(199)
  • Credit College - Taxes(70)
  • Credit Curriculum(1)
  • Credit Write Up(30)
  • Debt Capacity(9)
  • EBITDA(25)
  • FASB95(10)
  • Financial Analysis(50)
  • Five Cs of Credit(10)
  • Fund Accounting(49)
  • General(0)
  • Global Cash Flow(46)
  • Healthcare(17)
  • Loan Documentation(45)
  • Minimum Financial Data(12)
  • Not for Profit Analysis(22)
  • Personal Income Tax Returns and Cash Flow(65)
  • Problem Loans - Loan Classification(2)
  • Projections(22)
  • Statement Spreading(5)
  • Stress Testing(1)
  • Technical Issues(8)
  • Testing(1)
  • Tools(1)
  • Trusts(3)
  • UCA Cash Flow(56)
  • User Community(6)
  • Working Capital and Cash Flow(26)
Shockproof! Training

PO Box 30304 Walnut Creek, CA 94598
1.866.237.7228 support@shockproof.com

  • About
  • Career Opportunities

© Copyright 2001-2022 Shockproof! Training