What is an income statement?
An income statement, also recognized as a profit and loss statement (P&L), summarizes a company's revenues and expenses over a defined period, typically a fiscal quarter or year. It provides insights into a company's financial performance.
How to read an income statement
The income statement encompasses revenue, gross profit, operating expenses, and net income. Revenue is the total earned amount. Gross profit is revenue minus the cost of goods sold, while operating expenses include business costs. Net income indicates the company's profitability.
Different types of income statements
There are three types of income statements: the one that shows profit or loss, the statement of cash flows, and the balance sheet, each presenting a distinct view of a company's financial health.
Understanding the debt ratio
The debt ratio measures a company's financial leverage by comparing its total liabilities to total assets. High debt ratios suggest greater risk, while lower ones indicate financial stability.
How to calculate net profit and net profit margin
Net profit on the income statement is derived by subtracting expenses from revenue. Net profit margin, calculated as net income divided by sales, showcases the company's profit margin.
How to calculate operating income and EBIT
Operating income is found by deducting operating expenses from operating revenues. EBIT is net income before interest and taxes are considered.
Calculation of EBITDA and EBITDA margin
EBITDA, found by adjusting net income, provides a clearer picture of a company's operational performance. The EBITDA margin is computed by dividing EBITDA by revenue.
Calculation of earnings per share (EPS)
EPS calculates a company's profit on a per-share basis by dividing net income by the number of shares outstanding.
How to calculate return on equity (ROE)
ROE measures a company's profitability by dividing net income by shareholders' equity. It helps assess how effectively a company utilizes its equity.