Income statement

Income Statement: Composition and Interpretation

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Income statement used to measure the performance of a business over time. This report is one of the most important financial statements containing important financial data of the business. Besides, it also provides detailed information on sales performance and operating expenses managed. In the following article, Johnson's Blog will explain the income statement, its key elements, and how you can use it to analyze business performance.

What is an Income Statement?

An income statement, also known as a profit and loss statement or statement of operating activities, is a financial statement that shows a company's revenue and expenses for a specific period of time, usually a quarter or a month. year. With Balance Sheet, Cash Flow Statement, creating the three most important reports of the Financial Statements.

Income statement used to calculate net income company, is the amount by which revenue exceeds costs. Net income is the last line on the income statement.

The income statement provides valuable information about a company's financial performance, including how effectively it is generating revenue and controlling costs, which can be used to assess its viability. profitability, efficiency and overall financial position of the company.

Revenue and Profit

Revenue and profit are both types of income that a company can earn. Revenue is income earned from the sale of goods or services, while profit refers to income earned from other sources such as investments or property sales.

Revenue is considered the “top line” of the income statement, as it is often the first item listed. It is important to note that revenue is recognized when cash is earned and not when cash is received. For example, if a company sells goods or services on credit, revenue is recognized on the income statement when the goods are shipped or services are performed, not when the goods are shipped or services are performed. when the customer pays.

Profit, on the other hand, is not as regular as revenue, which is a less frequent type of income and is not generated from the main activities of the company. They are usually reported as a separate line item on the income statement and often as a smaller portion of the income statement total income.

Both sales and profits contribute to a company's net income, which is calculated by taking gross revenue and profit minus total costs.

Operating revenue

Operating revenue, also known as operating income or earnings before interest and taxes (EBIT), is the income generated from a company's primary operations, before interest and taxes are calculated. This measure is used to evaluate the performance of a company by analyzing its core business activities. It is calculated by taking total revenue and subtracting operating expenses.

Operating revenue is an important financial metric for any business. It is the amount of money a business earns from its normal operations, including revenue from sales, services, and other operating activities. This metric shows how much money the company is making and how healthy it is financially. It is also an important factor in calculating net income.

Operating revenue is usually reported as a line item on a company's income statement, showing how much money the business made from normal operations over a specific period of time. A business can use operating revenue to compare performance over time, determine cost effectiveness, and assess financial position. Overall, operating revenue provides valuable insight into the financial performance and health of the business.

Non-operating revenue

Non-operating revenue, also known as non-operating income, is income generated from sources outside of a company's primary operations. This includes income from investments in other companies, interest income, and income from the sale of assets.

These revenues are reported separately on the income statement because they are not directly related to the company's core businesses. Non-operating revenue can have a significant impact on a company's overall financial performance and should be analyzed alongside operating revenue to get a complete picture of the company's financial position. company.

Non-operating revenue may be volatile depending on market conditions and the company's financial performance. However, non-operating revenue is essential for companies looking to balance operating costs with profits.


Profit refers to an increase in equity due to transactions or events that are not part of the entity's primary revenue-generating activities. These are often referred to as “other income” or “other earnings” in the income statement. Examples of gains include the sale of a long-term asset, the gain from the settlement of a lawsuit, or the gain from the sale of an investment. Profit is added to the revenue to achieve gross revenue in the period.

Costs and Losses

Expense and Loss is the opposite of revenue and profit on the income statement. Expenses are costs incurred in the process of generating revenue, such as Cost of goods sold, wages, rent and utilities. Losses are negative financial events, such as losses from investments or the liquidation of long-term assets. Together, costs and losses are subtracted from sales and profits to determine net income or a company's net loss over a certain period of time.

Main operating expenses

Operating costs costs incurred by a company in the normal course of its business. These include expenses such as cost of goods sold, selling expenses, general and administrative expenses, and research and development costs. These costs are directly related to the generation of revenue and are reported on the income statement. They are subtracted from sales to arrive at the operating income or net income of the company.

Key operating expenses can be difficult to track and manage, so tracking expenses and calculating their operating expenses will benefit business owners. It is important for business owners to review their financial statements periodically to ensure that the costs of running their business are reasonable and within budget.

By tracking and analyzing operating expenses, business owners can ensure that they are running their businesses efficiently and making cost-effective decisions regarding expenses. such as wages, rent and supplies.

Extra operating costs

Ancillary operating expenses are expenses that are not directly related to the company's main business. Examples of additional operating expenses include interest expenses, foreign exchange losses, and losses from selling long-term investments or assets. These expenses are reported separately from the main operating expenses on the income statement and often have little to do with the overall performance of the company.

Losses as costs

A loss is an expense incurred by a company, usually as a result of some kind of negative event or event. These can include things like investment losses, disaster losses, or legal settlement losses. They are often included in the "expenses" section of the income statement and can have a significant impact on a company's overall financial performance.

Some common examples of losses that may be reported on the income statement include decommissioning losses, currency conversion losses, and impairment losses.

Income Statement Structure

The structure of the income statement typically includes the following elements:

  • Revenue: The amount of money a company earns from its main business activities.
  • Expense: The costs incurred in generating revenue. They may include Cost of goods sold (COGS), operating costs and interest expense.
  • Gross profit: The difference between sales and cost of goods sold, which measures a company's profitability before accounting for other costs.
  • Operating income: The difference between gross profit and operating expenses, which measures a company's ability to generate profits from its core businesses.
  • Non-executive income and expenses: Income and expenses that come from non-core business activities, such as profit or loss from investments.
  • Net income: The company's final profit or loss after taking into account all income and expenses.
  • Earnings per share (EPS): A measure of a company's profitability calculated by dividing net income by the number of shares outstanding.

Some income statements may also include additional line items such as income taxes, special items, and discontinued activities. The specific elements of the income statement can vary depending on the company and the accounting principles used.

Uses of the Income Statement

The income statement is used to evaluate a company's financial performance and to identify trends in a company's revenue, expenses, and profits. It basically has the following uses:

  • Helps investors, analysts, and other stakeholders determine a company's profitability, efficiency, and cash-flow generation.
  • Helps to compare company performance with that of competitor or industry standards.
  • Help calculate key financial ratios such as rate of return and return on investment (ROI) that can provide insights into a company's financial health.
  • Helps forecast future changes in the company's finances.

Read Income Statement

When reading an income statement, it is important to pay attention to the company's share of revenue and operating expenses, as well as the net income or loss for the period. This will give you an idea of the company's financial performance during that period.

It's also important to compare current income statements with prior periods and with other companies in the same industry to gain a better understanding of how the company is performing.

Other important things to look for when reading an income statement include gross margin, operating income, and net profit margin. These ratios can provide insight into a company's cost structure and performance.

In addition, it is helpful to look at the company's revenue and expense trends over time to see if they are increasing or decreasing.


The Revenue section of the income statement includes the total amount of money a company has earned from its operations over a specific period of time, such as a quarter or a fiscal year. This section usually includes both operating and non-operating revenue, such as sales from products or services, interest income, and rental income.

The revenue section is usually the first section of the income statement, and it's often broken down into different types of revenue, such as sales revenue, interest revenue, and rental revenue. It is important to note that revenue is recognized when it is earned and not when cash is received.

Operating costs

Operating expenses are the costs that a company incurs in order to run its business. These costs include things like wages, rent, utilities, and other day-to-day expenses needed to keep the business running. They are reported in the income statement under the heading “operating expenses”. They can be broken down into different categories, such as cost of goods sold, selling expenses, general and administrative expenses, and other operating expenses. These expenses are subtracted from sales to arrive at operating income or loss.

Income from ongoing operations

Income from going concern activities is an entry on the income statement that represents a company's net income from continuing operations. It is calculated by subtracting operating expenses from revenue, then subtracting any non-operating expenses or losses.

This section only includes income that comes from the company's primary operations and does not include any income or loss from interrupted operations or unusual items. This number is important because it shows the financial performance of the company's core businesses.

Net income

Net income, also known as net profit or net income, is a financial measure of a company's profitability. It is calculated by subtracting total costs from total revenue for a given period, such as a fiscal quarter or fiscal year. The result is the amount of money left by the company after all expenses have been paid.

Net income is an important metric for investors and analysts as it can indicate a company's overall health and growth potential. It is commonly found on the income statement and can be used to calculate other important financial metrics such as earnings per share (EPS).

Frequently asked questions

What are the four main elements of an income statement?

The four main elements of an income statement are:

  • Revenue: The amount of money a company earns from its main business activities.
  • Expense: Expenses incurred by a company to generate revenue.
  • Income from ongoing operations: The amount a company earns from its core business activities after deducting expenses.
  • Net income: A company's final profit or loss for a given period of time, calculated by subtracting costs and losses from sales and profits.

What is the difference between Operating Revenue and Non-Operating Revenue?

Operating revenue is revenue generated from a company's primary business activities, such as the sale of goods or services.

Non-operating revenue is revenue generated from secondary or peripheral activities, such as interest income or rental income.

The difference between the two is that operating revenue is directly tied to a company's core operations, while non-operating revenue is not.

As such, operating revenue is considered more reliable and sustainable than non-operating revenue.


Income statement is a financial statement that shows revenue, operating costs and income from the company's activities over a period of time. It is one of the most important financial statements of a company because it helps investors and business managers evaluate the company's performance. When analyzing income statements, investors analyze revenue and operating expenses to determine if expenses are being spent effectively. This helps them decide whether to invest in the business or sell the securities they hold.

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