Last week we showed the income and manufacturing cost side of the income statement. This week we’ll look at the other half, the expenses and profits.
On the expense side we have the cost of sales, administrative (G&A), R&D and depreciation (see table to right). These are the budget items controlled by each department during the year. The sales department did an excellent job by reducing costs 25%. Administrative costs were only reduced by 10%, while R&D took a big hit of 37.5%. Hopefully, that one big project to keep running is still being funded at these reduced levels.
And we managed to make a profit both years. In 2007 our earnings before interest and taxes (EBIT) was a respectable 12.1% of sales. Even in the down year we have earned 8.8% of sales. I wonder if we are spending enough on future products (R&D) to maintain this return? We also picked up some interest payments in 2008, which we’ll look at later. Our owners have taken most of the profits in dividends in 2008. Low R&D expenses and big dividends – is there something we should know about the future of Acme? These are certainly the types of questions you should be asking as a manager of this company.