The income statement is the core financial report of any company that reflects their profit and loss over a period of time. This can be easily evaluated by income statement formula. The profit or loss is determined by taking all revenue and subtracting all expenses relating to both operating and non-operating activities.
The income statement is one of the three statements used in both corporate finance and personal accounting. This statement displays the companies revenue, cost, gross profit, selling and administrative and other expenses like interest and tax paid and compute net profit in a coherent and logical manner. The three major statements which are crucial for financial analysis are income expenditure statements, the balance sheet and statement of cash flows.
The income statement is the first financial report that any investor or analyst will look into it. It shows the performance of the companies business throughout the given period. The income statement displays the sales revenue at the top. After deducting the cost of goods sold from sales revenue you are able to find gross profit. The gross profit is affected by various operating expenses like taxes, interest paid and cost of capital and depreciation. After deducting all these items from the gross profit, you reach to the net income, which is the bottom line in the business.
The key features of the income statement are
- It shows the revenue and expenses of a business.
- It is expressed over a period of time, which may be one year, one quarter or day to day basis.
- Uses accounting principles such as matching and accruals to represent figures.
- Used to assess profitability.
The formula for assessing the net income may be represented as