Income Statement

Income Statement is one of the company’s core financial statements that shows its profit and loss over a period of time.

Here’s an Income Statement of Apple, Incorporated.

Let’s take a look at the components of an Income Statement.

The income statement may have minor variations between different companies. However, there are several generic line items that are commonly seen in any income statement.

The most common income statement items include:

Revenue/Sales which is the company’s revenue from sales or services, displayed at the very top of the statement.

Cost of Sales also called COGS (Cost of Goods Sold) is a line-item that aggregates the direct costs associated with selling products or services to generate revenue. Direct costs can include labor, parts, materials, and an allocation of other expenses such as depreciation.

Gross Margin also can be called as Gross Profit is calculated by subtracting Cost of Goods Sold (or Cost of Sales) from Sales Revenue.

Operating Expenses usually include Selling, General and Administrative Expenses (SG&A). This includes marketing, advertising and promotion expenses as well as salaries and wages, rent and office expenses, insurance, travel expenses, and sometimes depreciation and amortization, along with other operational expenses.

Operating expenses may also include research and development as listed here.

Operating Income or EBIT (Earnings Before Income and Taxes) represents what’s earned from regular business operations. In other words, it’s profit before any non-operating income and expenses happen.

Other Income / Expenses would include income / expenses that are unique to their industry.

Income before provision for income taxes or EBT (Earnings Before Taxes) is basically a Pre-Tax Income of the company.

Then Income Taxes are listed.

And then Net Income is calculated by deducting income taxes from pre-tax income. This is the amount that flows into retained earnings on the balance sheet, after deductions for any dividends.