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What is an Income Statement?


The term 'Income Statement' is included in the Accounting edition of the Financial Dictionary. Get yours now on mazon in ebook or paperback format. Read more here...

An Income Statement refers to a corporate financial statement that relays the performance of the company for a specific accounting time frame. Analysts measure such performance through reading the summary of the business revenues and expenditures in its non-operating and operating endeavors together. This statement reveals the net loss or net profit which the business experienced in the particular accounting time period. These documents are also referred to as statements of revenues or profit and loss statements.

As one of three important financial statements, these become contained within the yearly 10-K and corporate annual reports. The other two critical documents are the statement of cash flows and the balance sheet. Every publically traded firm is required by law to deliver such legal documents to the investing public via the SEC Securities and Exchange Commission. These three combined statements relay all of the critical information on the firm’s financial affairs. Yet the income statement is special in that it alone reveals the company’s net income and overall sales’ overviews.

Income statements are different from the balance sheet in at least one critical way. Balance sheets provide a single moment in time snap shot of corporate performance. Income statements on the other hand deliver useful information on an entire time frame or period. They start with the company sales figures and conclude with the total net income and appropriate EPS earnings per share figures.

These income statements become sub-divided into two sections. The first is operating. The second proves to be non-operating. Operating sections of the statements on income reveal all of the pertinent data on expenses and revenues which result directly from the normal principal daily operations of the business. It helps to look at a real world example to better understand the concept. If a company makes computer equipment, then it will mostly earn its revenues through manufacturing and selling such computer equipment.

In the non-operating segment of the income statement, investors learn about the expenses and revenues associated with extraordinary operations of the firm. Continuing on with the prior example, the computer equipment firm may also sell some investments and real estate properties. Any and all gains it realizes on the sales would be included under the non-operating items portion of the statement.

Analysts find a number of important uses for these income statements. Among the key ones is figuring up critical financial ratios like ROA return on assets, ROE return on equity, gross and operating profits, EVIT earnings before interest and taxes, and EBITDA earnings before interest, taxes, and amortization. As such, these statements will commonly be portrayed in a standardized format that lays out every line item as a percentage of the sales. This method allows for analysts and investors alike to quickly and easily determine the expenses that comprise the greatest amount of the sales.

These statements may similarly compare and contrast both the QOQ quarter over quarter performance and the YOY year over year performance. This is why the income statement commonly delivers at least two and often three years of comparable historical data for analysts to consider. There are also two methods for presenting the income statements. They might be offered in a multi-step format. Accountants for the company could also portray them in a single step format. Each of the two methods is consistent with the important GAAP standards. They also both provide the identical net income final numbers. In fact their figures are formulated in more or less the same way. It is only their compilation and format which proves to be different from one another.

The term 'Income Statement' is included in the Accounting edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.