Income Statement - Purpose, Components, and Format

Gross Profit Margin

(Revenue - COGS) / Revenue

What is EBITDA?

A proxy for cash flow, EBITDA is earnings before interest, taxes, depreciation and amortization. It can be found on the income statement by starting with EBIT and adding depreciation and amortization back.

Operating Expenses

All of the expenses involved in running the core operations of a business

Net Income Equation

Net Income = Revenues - Expenses

Examples of Operating Expenses

Rent, Insurance Premiums, and Employee Wages

Net Loss

Revenue < Expenses

Net Gain

Revenue > Expenses

Income Statement Components

Revenue, Expenses, Net Income

What is the difference between the income statement and the statement of cash flows?

The income statement is a record of revenue and expenses while the statement of cash flows records the actual cash that has either come into or left the company.

Operating Revenue

The revenue earned by a business from its normal or primary business operations.

Purpose of Income Statement

To show whether a company made or lost money in a given time period. To show the bottom-line profit of loss that the business had in a certain time period.

Non-operating Expenses

expenses that are not related to a business's normal operations

Operating Income Formula

gross profit - operating expenses

Non-operating Revenue

income which does not come from the primary goal of business

Capital Expenditure

investment spending on fixed capital assets such as the purchase of land and buildings that improves the useful life of an existing capital asset

Gross Profit

net sales - cost of goods sold

Net Income

the amount of money that is left after a company subtracts their expenses from their revenue

Cost of Goods Sold (COGS)

the amount that the company paid for the good or services that it sold over the course of a given time period

Expenses

the money a company pays out

Revenue

the money a company takes in

Operating Income

a figure that measures the amount of profit realized from business's operations after deducting operating expenses, such as wages depreciation and COGS