What is an income statement?
The income statement reports performance over time. It answers the question: did the business make money during this period, and how? Along with the [balance sheet](/glossary/balance-sheet) and [cash flow statement](/glossary/cash-flow-statement), it is one of the core [financial statements](/glossary/financial-statements).
Typical structure
- Revenue (sales)
- Less [cost of goods sold](/glossary/cost-of-goods-sold)
- = [Gross profit](/glossary/gross-profit)
- Less [operating expenses](/glossary/operating-expenses) (salaries, rent, marketing, depreciation)
- = Operating profit (EBIT)
- Less interest, plus other income
- = Profit before tax
- Less income tax
- = [Net income](/glossary/net-income)
Example
Revenue $500,000 − COGS $300,000 = gross profit $200,000. Operating expenses $120,000 → operating profit $80,000. Interest $10,000 and tax $17,500 → net income $52,500.
Single-step vs multi-step
A single-step format lists all income, then all expenses. A multi-step format shows gross profit and operating profit separately, which is more useful for analysis.
Key metrics
- Gross margin, operating margin and [net profit margin](/glossary/net-profit-margin)
- Revenue growth
- Expense ratios
Why it matters
The income statement shows profitability, highlights cost problems and is the basis for tax calculations and business valuations.