Income Statement Introduction
The income statement, one of the primary financial statements, reflects a company's financial performance over a specific accounting period. It details revenues, expenses, profits, or losses.
Revenue: Core Concept
Revenue atop the income statement represents the total income from goods sold or services provided. It's often split into operating (core business) and non-operating (side activities).
Cost of Goods Sold (COGS)
COGS includes direct costs attributable to production. This metric helps investors determine the gross margin when subtracted from revenue, unveiling the production efficiency.
Operating Expenses Unpacked
Operating expenses, beneath gross profit, include sales, general, and administrative costs, revealing the company's overhead required to maintain operations.
Depreciation & Amortization
These non-cash expenses distribute the cost of long-term assets over their useful life, affecting net income. They serve as tax-deductible expenses, reducing taxable income.
Interest and Tax Impact
Interest expense and income tax are deducted from earnings before tax (EBT). These components are critical for assessing how debt and tax strategies affect net income.
Net Income Significance
Net income is the 'bottom line,' the profit after all expenses are subtracted from revenues. It's a key indicator of profitability and a starting point for dividend distributions and retained earnings.
What does the income statement reflect?
Company's assets and liabilities
Financial performance over time
Current stock market value
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