An Income Statement, also known as a Profit and Loss (P&L) Statement, is a financial document that summarizes a company's revenues, costs, and expenses over a specific period, typically a quarter or a year. Here's a breakdown of its key components:
- Revenues: This includes all income from sales, services, or other business activities. It's the top line of the income statement.
- Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold by the company. Subtracting COGS from revenue gives you the Gross Profit.
- Gross Profit: Revenue minus COGS. This shows how efficiently a company uses labor and supplies in producing its goods or services.
- Operating Expenses: These are the costs associated with running the business that aren't directly tied to production, like rent, utilities, salaries (not included in COGS), marketing, and depreciation.
- Operating Income: Also known as Operating Profit, this is calculated by subtracting operating expenses from gross profit.
- Interest and Taxes: Depending on the structure of the statement, interest expenses and taxes might be listed here to show income before these expenses.
- Net Income: This is the "bottom line," calculated by subtracting all expenses from revenues. It represents the company's profit or loss after all costs have been accounted for.
- Earnings Per Share (EPS): For public companies, this shows how much money shareholders would get if the net income was distributed among all outstanding shares.
An income statement provides insight into how much money a company makes, how it spends its money, and whether it's profitable. It's one of the three key financial statements used by investors, creditors, and management to assess performance, alongside the balance sheet and cash flow statement.