Income statement (also called statement of operations, profit and loss statement, P&L or other) is one of three main financial statements reported by the companies periodically. Income statement exposes company’s income and expenses over specified period.
It is easy to read income statement if you know what the main parts are:
|Sales||Revenue, Net sales, Total income, Turnover (may include taxes)||Sales or revenue represents the amount of services and products sold over the accounted period. For large projects accounting of sales may be more difficult than signing of selling agreement or manufacturing of the product.|
|Cost of goods sold||Cost of sales, COGS, cost of services||Costs of goods sold are those costs that are directly related to the process of production of items or services. Such costs usually include raw materials, labor cost, energy cost and similar.|
|Gross profit||Gross income, Gross margin||Gross profit = Sales – Cost of goods sold.|
|Operating expenses||Administrative (and selling) expenses, General & administrative expenses, SG&A, Overhead expenses||Operating expenses normally include expenses of overhead (office), marketing and selling expenses, distribution expenses and similar expenses that are related to the management.|
|Operating profit||Operating income, EBIT||Operating income = Gross profit – Operating expenses + other operating income.|
|Financial income||Interest income||Income received from bank deposits or other financial investments.|
|Financial expenses||Interest expenses||Expenses paid for loans or similar financial obligations.|
|Profit before tax||Income before tax, Pre-tax profit, Pretax income||Profit before tax = Operating income + financial income – financial expenses +/- other non-operating activity.|
|Taxes||Income taxes, Corporate income tax, Profit Taxes||Taxes that should be paid to authorities. Most of the times it includes only corporate income tax.|
|Net profit||Net income, Earnings, Net earnings||Net profit = Profit before tax – Taxes.|
|Comprehensive income||Comprehensive profit||Comprehensive income is income calculated eliminating an effect of currency fluctuations to the shareholders.|
|Minority interest||Minority share, Non-controlling interest||It is a part of profit that theoretically belongs to smaller shareholders of subsidiaries of the group. Minority interest is calculated if there are some subsidiaries that aren’t controlled 100%.|
|Profit attributable to shareholders||Equity holders profit, Income, Profit attributable to owners of the parent||Profit attributable to shareholders = Net profit – minority interest.|
Every income statement covers some period: one quarter (3 months), two quarters (6 months), three quarters (9 months) or one year and the period is always indicated on the top of income statement. Also the result for the same period of previous year always has to be disclosed.
It is important to notice the currency and the amounts of the numbers while numbers may represent thousands or millions of the indicated currency. If results are consolidated, it means that income statement represent numbers of the whole group including subsidiaries, if they are under control.
In the picture below you can see simple example of the income statement, however, keep in mind that income statements may have different forms and indicators inside, but the meaning always stays the same.