An income statement, also known as a profit and loss statement, is a financial statement that shows a company's revenue and expenses over a specific period of time. It is one of the three most important financial statements, along with the balance sheet and the cash flow statement.
The income statement shows how a company generates revenue and how it uses that revenue to cover its expenses and generate a profit. It is a useful tool for investors, creditors, and management to assess a company's financial performance and make informed decisions.
The income statement is typically divided into the following sections:
- Revenue: This section includes all of the revenue that the company generated from its sales and other activities.
- Cost of goods sold (COGS): This section includes the direct costs of producing the goods or services that the company sold.
- Gross profit: This section is the difference between revenue and COGS. It is a measure of the company's profitability before other expenses, such as operating expenses and taxes, are taken into account.
- Operating expenses: This section includes all of the company's expenses that are not directly related to the production of its goods or services, such as selling and administrative expenses.
- Operating income: This section is the difference between gross profit and operating expenses. It is a measure of the company's profitability before taxes.
- Income before taxes: This section is the difference between operating income and non-o
erating income and expenses, such as interest income and expense.
- Income taxes: This section includes the income taxes that the company owes on its income before taxes.
- Net income: This section is the company's profit after all expenses have been deducted. It is the bottom line of the income statement and is a measure of the company's overall financial performance.
The income statement can be used to calculate a number of important financial ratios, such as the profit margin, asset turnover, and inventory turnover. These ratios can be used to compare the company's financial performance to its peers and to identify trends over time.