Why Study an Income Statement?
Structuring an income statement according to NAHBs Chart of Accounts allows a home building company and its management to better compare the companys financial performance with industry standards. When financial data is consistently classifiedby the NAHB Chart of Accounts categories, a builder can compute meaningful financial ratios. Financial ratios are important because they help you: • Understand how your company makes money. • Identify areas of your company that require attention or different resources. • Comprehend key ratios that are important to your lenders (particularly debt-to-equity ratio and various returns on assets and sales). For example, a builder can compute operating ratios by comparing the various costs and expenses on an income statement with the closed volume (sales) that also appears on the statement. Builders can then comparetheir operating ratios to industry operating ratios or to those of other builders. NAHBs Cost of Doing Business Study (which can be ordered
