Loading the player...

What is an 'Income Statement'

An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.

BREAKING DOWN 'Income Statement'

Also known as the profit and loss statement or statement of revenue and expense, the income statement is one of three major financial statements in the annual report and 10-K. All public companies must submit these legal documents to the Securities and Exchange Commission and investor public. The other two financial statements are the balance sheet and the statement of cash flows. All three provide investors with information about the state of the company's financial affairs, but the income statement is the only one that summarizes company sales and net income.

Income Statement

Unlike the balance sheet, which covers one moment in time, the income statement provides performance information about a certain time: monthly, quarterly, yearly or any other variation. It begins with sales and works down to net income and earnings per share.

There are two parts to an income statement: operating and non-operating. The operating portion of the income statement discloses information about revenues and expenses that directly result from regular business operations. For example, if a business creates sports equipment, it should make money through the sale and production of sports equipment. The non-operating section discloses revenue and expense information about activities not directly tied to a company's regular operations. Continuing with the same example, if the sports company sells real estate and investment securities, the company will list the gain from the sale in the non-operating items section.

A Real World Example

Below is a reproduction of Apple Inc.'s (AAPL) income statement. All amounts are in millions of U.S. dollars.

Income Statement:
Revenue 45,260
Cost of Goods Sold 27,993
Gross Profit 17,267
 
Operating Expenses:
SG&A (Selling, General, and Administrative Expenses) 6,720
Other Operating Expense -
Operating Income 10,547
Non Operating Income Expense -
Interest Expense 602
Unusual Expense -
Pretax Income 11,308
Income Taxes 2,591
Equity In Earnings Of All Affiliates Income -
Other After Tax Adjustments -
Consolidated Net Income 8,717
Minority Interest Expense -
Net Income Continuing Operations 8,717
Preferred Dividends -
Net Income Available to Common Basic Shares 8,717
 
Earnings Information:
EPS Diluted Before Unusual Expense 1.67
EPS Basic Before Extraordinaries 1.68
EPS Fully Diluted  1.67

Click here to see Apple Inc's. most recent income statement

Income Statement Uses

Analysts use the income statement for data to calculate financial ratios such as return on equity, return on assets, gross profit, operating profit, earnings before interest and taxes, and earnings before interest taxes and amortization. Companies often present the income statement in a common-sized format, which provides each line item on the income statement as a percent of sales. In this format, analysts can easily see which expenses make up the largest portion of sales. Analysts also use the income statement to compare year-over-year and quarter-over-quarter performance. The income statement typically provides two to three years of historical data for comparison.

To learn more about the income statement and how to use them in investment selection, please read Understanding The Income Statement and Find Investment Quality In The Income Statement.

RELATED TERMS
  1. Financial Statements

    Financial statements are written records that convey the financial ...
  2. Common Size Financial Statement

    A common size financial statement allows for easy analysis between ...
  3. Vertical Analysis

    Vertical analysis is a method of financial statement analysis in ...
  4. Operating Income

    Operating income is the amount of money a company generates from ...
  5. Operating Income

    Operating income is the amount of money a company generates from ...
  6. Operating Activities

    Operating activities are those that pertain to a company's core ...
Related Articles
  1. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  2. Investing

    3 Profit Metrics Every Investors Should Understand

    In this article, you will understand how the three metrics gross profit, operating profit, and net profit helps investors see how a company is performing.
  3. Investing

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  4. Investing

    Look For These Red Flags In The Income Statement

    Companies can overstate their revenues and understate their losses to boost investor confidence. Learn how to spot the these red flags in income statements.
  5. Insights

    Navigating Government and Nonprofit Financials

    Examining government & nonprofit financials can help you trace where your dollars are really going.
  6. Investing

    Why Financial Statements Are Harder to Read Than Ever Before

    Understand four major reasons that financial statements published in 2016 are more complicated and difficult to read than they were in the past.
  7. Investing

    Is Net Income The Same As Profit?

    Net income and profit both deal with positive cash flow, but there are important differences between the two concepts.
RELATED FAQS
  1. What is the difference between a cash flow statement and an income statement?

    Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
  2. How do operating income and net income differ?

    Operating income and net income both show the income earned by a company, but they are distinctly different ways of expressing ... Read Answer >>
  3. How do operating income and revenue differ?

    Revenue and operating income have different deductions and credits involved in their calculations and both are essential ... Read Answer >>
  4. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
  5. What is the difference between a compiled and a certified financial statement?

    All publicly-traded companies are required to provide financial statements, including a balance sheet, cash flow statement ... Read Answer >>
Trading Center