Dictionary / Financial statements
What Is an Income Statement?
An income statement shows how much money a company made and spent over a period, and what profit was left. It is also called the profit and loss statement, or P&L.
How to read it, top to bottom
- Revenue: all sales.
- Minus cost of goods sold = gross profit.
- Minus running costs like staff, research and marketing = operating income.
- Minus interest and taxes = net income, the bottom line.
What it tells you
Whether the company is growing, how much of each sale it keeps, and where the money goes. Watching the lines change over several years tells you more than one single year.
What it does not tell you
It does not show how much cash the company has or owes. For that, you need the balance sheet. And profit is not the same as cash, so also read the cash flow statement.
See it in real companies
Open a company to see what it sells and how it makes money.
Related terms
Balance sheetShows what a company owns and owes.
Cash flow statementShows where the cash came from and went.
Earnings reportA company's report card, every three months.
Gross profitSales minus the direct cost of the product.
Operating incomeProfit from the core business.
Net incomeThe final profit after every cost.