Fundamental Analysis
The Income Statement
The income statement is the most popular
financial statement in an annual or quarterly report. The
income statement is the "sexy" portion of the financial statements
because it includes figures such as revenue, net income,
and earnings per share (EPS) . In essence, an income statement
tells you how much money a company brought in (its revenues),
how much it spent (its expenses), and the difference between
the two (its profit/loss), over a specified time.
Profit is, after all, the reason companies are in business.
While some new companies are not be expected to be profitable
for a few years, over the long run, no company can survive
without profits.
The income statement is simply designed,
and even simpler to read. The statement is looked at from
top to bottom. The top line lists the revenue (sales) brought
in. Each subsequent line deducts expenses and costs from the
revenue figure until you finally get to the bottom line (net
income). Each item that has a line above the number means
that it is a subtotal or total (the net income usually has
a bold or double line below the number).
Below is the typical layout of an income statement:
| Income Statement |
| Revenue |
- the proceeds that
come from sales to customers |
| Cost of Goods Sold (COGS) |
- an expense that
reflects the cost of the product or good that generates
revenue. For example, if a loaf of bread costs 50
cents to make, then COGS is 50 cents. |
| Gross Margin |
- also called gross
profit, this is revenue minus COGS |
| Operating Expenses |
- any expense that
doesn't fit under COGS such as administration and
marketing expenses. |
| Net Income Before
Interest and Tax |
- net income before
taking interest and income tax expenses into account. |
| Interest Expense |
- the payments made
on the company's outstanding debt. |
| Income Tax Expense |
- the amount payable
to the federal and state governments. |
| Net Income |
- the final profit
after deducting all expenses from revenue. |
| Net Income Per
Share |
- the net income divided
by the number of shares (stock) owned by the public.
Otherwise known as EPS. |
There isn't one cookie cutter way to present a company's income
statement. The exact information presented depends, to some
extent, on the type of business the company is in. For example,
some companies will break down their operating expenses into
various categories, while others do not. Furthermore, some companies
list depreciation expense as a separate line item, while others
do not.
Below is a sample income statement:
Cory's
Tequila Co.
Consolidated Income Statement
(in millions, except per-share amounts) |
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