An income statement (also referred to as a profit and loss statement, or P&L), is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. Learn the components of the income statement below, or get a broad understanding of financial statements in our Intro to Financial Accounting Free Guide. These topics are covered extensively in our finance courses and financial modeling training programs in New York.
The screenshot below shows Apple’s income statement for 2014 through 2016 (in millions of dollars, except shares and per share amounts).
For the year ended September 24, 2016, Apple generated $215.6 billion in net sales (or revenues), meaning sales of its products and services including the iPhone, iPad, and Mac.
The cost of sales, or actual cost to produce those goods and services (including component costs, manufacturing labor, and other factory costs), totaled $131.4 billion. Subtracting those two numbers, Apple generated $84.2 billion in gross margin (or gross profit) – simply sales less cost of sales.
Apple also spent $10.0 billion for research and development (R&D), and $14.2 billion in selling, general and administrative (SG&A). SG&A typically includes executive salaries, marketing costs, and rent. After subtracting R&D and SG&A from Gross Margin, we are left with operating income.
Operating income is essentially the profit before tax that the underlying business generated – excluding financing considerations like interest expense or interest income.
Finally, Apple must pay income tax on the profit it earns. This shows up as provision for income taxes. After accounting for income tax, the final result is net income, or the profit a business earns after all expenses, other income/expense, and income taxes.
The presentation of the income statement varies from company to company, but it follows the same form of revenues less expenses equals net income.