An income statement is a financial report that shows a company’s revenues, expenses, and profit over a specific period of time. It provides insight into how much money a company earned and how much it spent in order to generate that income. The result is either a profit or a loss.
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The income statement reveals how efficiently a company turns revenue into profit.
The report typically begins with total revenue, followed by the cost of goods sold to calculate gross profit. Operating expenses such as salaries, marketing, and administrative costs are then deducted to determine operating profit. After accounting for interest and taxes, the final figure is net income. Investors analyze the income statement to evaluate profitability, cost control, and growth trends.
However, it does not show cash flow directly, since revenues and expenses may be recorded before money is actually received or paid. For a complete picture, it is often reviewed together with the balance sheet and cash flow statement.
Short example:
Suppose a company generates $2 million in revenue during one year.
Its total expenses amount to $1.6 million.
The income statement shows a net profit of $400,000 for that period.
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