Income Statement
Basics
- Income Statement has many labels
- Profit and Loss Statement (P&L)
- Operating Statement
- Statement of Earnings
- Can measure entire business, or a division, or any business unit
- Income statement is a specific period of time
- A order is NOT a sale until product/service is provided to a customer.
Components
- Cost-of-Goods-Sold (COGS)
- The costs directly associated with providing a product or service
- Direct labor to manufacture the product
- Direct material in the product
- Manufacturing Overhead — indirect expenses required to build the product
- For SaaS firms — The costs directly associated with delivering its product to its customers
- Operating Expenses
- Research and Development
- Selling Costs
- General and Administrative Costs (G&A)
- Capital Expenditures
- Cash expenses paid for assets that provide benefits over a long time frame
- Depreciation – tangible assets
- Amortization – intangible assets
- Matching Principle - match expenses to revenue for each accounting period, based on estimated useful life of the asset
- One-Time Charges
- Goodwill Impairment
- Restructuring
- Gross Profit (Income) = Sales - COGS
- Operating Profit (Income) = Gross Profit - Operating Expenses
- Also known as EBIT (Earnings before Interest and Taxes)
- Reflects what business earns from operating it’s business
- Net Profit (Income)
- Operating Profit - interest expense - other expenses (typically one-time) - taxes
- Primary measurement on public companies — the Bottom Line
- Net Sales - Cost of Goods Sold (COGS) = Gross Income/Loss
- Gross Income (Profit) - Operating Expense = Operating Income/Loss
- Operating Income +/- Other Income/Expense = Income/Loss before Tax
- Income before Tax - Income Taxes = Net Income/Loss