Also called earnings statement or profit & loss statement.
Matches revenues & expenses over a period of time, e.g., quarter or year
‘Flow’ measure statement: each value on an income statement represents cumulative amount of that item through the accounting period.
Profit vs. Cash flow: Seldom the same, Accrual vs. Cash accounting
- Net Sales: Gross sales-(returns & allowances)
- Cost of Goods Sold (COGS)
COGS = Beginning Inventory +Materials Purchases - Ending Inventory.
3. Operating Expenses:
Include management salaries, advertising expenditures, repairs & maintenance, R&D, general & administrative expenses
4. Interest Expense: Cost of borrowing money
5. Taxes: Federal, state and/or local levels.
6. New Income:
'bottom line' of income statement
Base profit earned during accounting period
Income Statement Ratio: indicators of firm's current and future performance
Earning Per Share: Net Income Available to Common Shareholders/ number of common shares outstanding.
P/E Ratio: Price per share of common stock/ Earnings per share(EPS)
We would prefer to see I higher EPS which means that the company generates more profit for their shareholders.
the P/E ratio is an important investment tool also
