Definition
The income statement (profit and loss statement) shows how revenue transforms into net income through successive expense deductions: COGS, operating expenses, interest, and taxes. It reveals operational performance over a period (quarter or year), unlike the balance sheet snapshot. Key metrics derived from the income statement include margins, EPS, and revenue growth.
functions Formula
Net Income = Revenue − COGS − OpEx − Interest − Taxes
lightbulb Example
Revenue $100M → Gross Profit $55M (45% COGS) → Operating Income $25M (OpEx $30M) → Pre-Tax Income $22M (Interest $3M) → Net Income $16.5M (Taxes $5.5M). Net margin = 16.5%.
verified_user Key Points
- Shows profitability over a specific period
- Revenue → Gross Profit → Operating Income → Net Income
- Key for computing margins and EPS
- Read alongside cash flow statement for quality check