The Income Statement
The income statement, also known as the profit and loss statement, includes the company’s revenues and expenses over a period of time. This is the simplest way to see if a company is making or losing money. An income statement starts with the company’s revenues which would include any sales generated from products or services and then subtracts the expenses of the company to ultimately reach a final profit number. An income statement can show a company’s profitability over a period of time, whether that is quarterly, annually, or any other time frame.
The main things you will generally see on an income statement:
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Revenues: the sale of products or services
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Cost of good sales (COGS): the direct cost associated with the delivery of those goods or services. For example, this would include the cost of parts of the phone as well as the labor costs associated with making the phone
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Marketing expenses: expenses associated with advertising or sales to promote the company’s products or services
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Research & development (R&D): the cost of testing, trialing, and creating new products
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Selling, general & administrative (SG&A): corporate expenses such as management, salaries and incentives, corporate offices, and other expenses needed to run the company.
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Interest expense: interest on debt that the company might have (bonds or loans)
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Interest income: interest received on cash or investments that the company has
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Income taxes: federal, state, local, and any additional income taxes owed from the profits of the business
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Depreciation and amortization (D&A): a non-cash expense that represents the “spreading out” of larger investments. For example, a large purchase of a new machine for a factory would be depreciated over the course of many years. Different categorization of items will dictate how they are depreciated (i.e. the period of time).
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Gross profit: the gross profit is calculated by taking revenue minus the cost of goods sold, which measures the company’s profit only accounting for the direct cost of goods
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Operating income: calculate by taking revenue minus operating expenses, representing the company’s pre-tax income directly related to its operations
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EBIDTA: commonly used profit metric, earnings before interest taxes, depreciation, and amortization
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Net income: the company’s bottom line profit and loss, representing revenue minus all expenses
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