102-16 The Income Statement

The Income Statement

The income statement is also known as the profit and loss statement (P&L).  This document tells us what made the company profitable or unprofitable for the given time period.  It lists the revenue generated, the cost of generating that revenue, and deducts any taxes paid on that revenue.

The amount of money left after expenses and taxes is known as income.

Income Statement For Company ABC – FY 2018 and 2019

 

(Figures USD)

2018

2019

Net Sales

500,000

1,000,000

Cost of Sales

(250,000)

(300,000)

Gross Profit

250,000

700,000

Operating Expenses (SG&A)

(50,000)

(70,000)

Operating Income

200,000

630,000

Other Income (Expense)

20,000

30,000

Extraordinary Gain (Loss)

Interest Expense

(5,000)

(5,000)

Net Profit Before Taxes (Pretax Income)

215,000

655,000

Income Taxes

(75,000)

(200,000)

Net Income

140,000

455,000

Net Sales is the total amount of cash or equivalent made from the sale of goods or services.

The cost of sales is the total cost of manufacture, raw materials, equipment, employees, building maintenance, and depreciation.

Gross profit is net sales minus cost of sales.  This is what is left over before other expenses and taxes are applied.

Operating expenses also known as selling, general, and admin expenses.

Operating income is what is left after SG&A is deducted from gross profit.

Interest expense would typically be the cost of borrowing, for example, the loan repayments to a bank.

Net profit before taxes is the profit before the taxes are applied.

Taxes are there tax payments due on the revenue generated for this period.

Net income is what is left after all the expenses and taxes are deducted.

Special Note: Always keep a watchful eye out for anything marked as special items or extraordinary expenses.  These are allowed for in the generally accepted accounting principles (GAAP) but only as one-off charges for things like restructuring or closing of business units. E.g., redundancy payments.  These may be significant enough to alter the post-tax profit figure from a healthy profit to a minor loss.  You should consider these in your valuation of a company.

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