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Income Statement

Income Statement

What Is the Income (Profit and Loss) Statement?

The income statement subtleties a company's revenue and expenses to demonstrate profitability for a period. For publicly traded companies, the income statement is one of three statements that create the financial statement documented with the Securities and Exchange Commission on a quarterly and annual basis. The income statement is likewise alluded to as the profit or loss statement.
The other two statements are the balance sheet, which shows a company's assets and liabilities, and the cash flow statement, which shows how a company's cash is managed and used. A few companies likewise distribute a fourth statement known as shareholders' equity, which shows debt and equity attributable to investors. Shareholders' equity typically shows up on the balance sheet. In short, the income statement is a snapshot of a company's ability to generate profit, subsequent to deducting expenses from revenue.

What Are the Components of the Income Statement?

Coming up next are the principal segments normally remembered for a company's income statement. A few companies utilize various names to allude to certain parts.


Revenue is the beginning of the income statement. The top detail shows money generated from the sale of goods and services.

Cost of Goods Sold

Cost of goods sold(/machine gear-pieces) addresses the direct cost tied to the purchase of raw materials and producing a completed product.

Gross Margin

Gross margin, or gross profit, is a subtotal for profit that shows how much income is generated from sales in the wake of deducting cost of goods sold.

Operating Expenses

Operating expenses are indirect costs, which incorporate expenses for research and development, marketing, and executives' salaries.

Operating Income

Operating income is a subtotal for profit subsequent to operating expenses have been deducted from gross profit.

Interest Expenses

Interest expenses are tied to the cost of financing, like payments for interest on loans and bonds.

Tax Payments

Tax payments allude to corporate tax paid to the government.

Net Income

Net income is the finish of the income statement. It is the primary concern figure that shows how much money stays after expenses have been deducted from revenue. All expenses are deducted from revenue to compute net income, and the net income formula below records the expenses after revenue. A company would likewise break down net income into earnings per share and report the number of common shares outstanding utilized in that calculation.

Net Income Formula

Net Income = Revenue - Cost of Goods Sold - Operating Expenses - Interest Costs - Tax Payments

Who Uses the Income Statement?

The income statement is a snapshot for corporate executives, investors, and analysts to check a company's ability to generate profit over a period. Gathering income data north of several periods could show whether a company has had the option to sell more goods and keep costs for production and labor taken care of.

Instructions to Interpret the Income Statement

Revenue and expenses are the principal parts of the income statement, and deciphering them gives executive management, investors, and analysts a comprehension of how costs are managed to produce profit for a period or over a set of periods.
In the model below for Apple, a 5-year gathering of its income statements show how its net income nearly multiplied with an increase in sales of its product and services while keeping expenses in check.
Apple records its revenue as net sales, which is broken down side-effects (iPhone, MacBook, and so on) and services (Apps, Apple TV+, and so on.). Apple saw a 33 percent flood in sales in 2021 from the previous year, however the company kept its cost of sales lower than net sales, which assisted it with booking a large gross margin.
The rate of operating expenses held consistent from 2018 to 2021, showing that executive management was keeping up with control over these indirect costs. There were no extraordinary things kept in 2021, so the remainder of expenses were clear, leading to an outsized gain in net income.

Apple2021% Change2020% Change2019% Change2018% Change2017
Net Sales:
Total net sales365,81733%274,5156%260,174-2%265,59516%229,234
Cost of sales:Ā 
Total cost of sales212,98126%169,5595%161,782-1%163,75616%141,048
Gross marginĀ 152,83646%Ā 104,9567%98,392-3%101,83915%88,186
Operating expenses:Ā 
Research and developmentĀ 21,91417%18,75216%16,21714%14,23623%11,581
Selling, general and administrative21,97310%19,9169%18,2459%16,7059%15,261
Total operating expenses43,88713%38,66812%34,46211%30,94115%26,842
Operating incomeĀ 108,94964%66,2884%63,930-10%70,89816%61,344
Other income/(expenses), net258-68%803-56%1,807-10%2,005-27%2,745
Income before provision for income taxes109,20763%67,0912%65,737-10%72,90314%Ā 64,089
Provision for income taxes14,52750%9,680-8%10,481-22%13,372-15%15,738
Net incomeĀ 94,68065%57,4114%55,256-7%59,53123%48,351
Earnings per share
DilutedĀ 5.6171%3.2810%2.97-75%11.9129%9.21
Shares used in computing earnings per share:
BasicĀ 16,701,272-4%17,352,119-6%18,471,336273%4,955,377-5%5,217,242
Figures are in large number of U.S. dollars, with the exception of percentage change, number of shares, and earnings per share, which is in dollars. Apple Form 10-K


  • Revenues are not receipts. Revenue is earned and reported on the income statement. Receipts (cash received or paid out) are not.
  • Net Income = (Total Revenue + Gains) - (Total Expenses + Losses)
  • Total revenue is the sum of both operating and non-operating revenues while total expenses incorporate those incurred by primary and secondary activities.
  • An income statement provides valuable experiences into a company's operations, the productivity of its management, failing to meet expectations sectors and its performance relative to industry peers.
  • An income statement is one of the three (alongside balance sheet and statement of cash flows) major financial statements that reports a company's financial performance over a specific accounting period.


How Is the Income Statement Prepared?

The income statement first assembles revenue and afterward the direct costs engaged with production, to be specific costs of goods sold. Indirect costs, like marketing and research and development, are then deducted. After all expenses have been represented, the net income figure shows profitability.

What Is Income Statement Pro Forma?

Income statement pro forma shows how a company's income statement would show up for projected results on the off chance that certain changes were made, at times made on the expectation of drawing in likely investors. A few companies, for example, startups, utilize pro forma to show investors how they would accomplish profitability for their company in the event that specific costs were eliminated.

Who Prepares the Income Statement?

A company's internal finance and accounting team prepares the income statement, and for publicly traded companies, an auditor approves the financial statement as an endorsement.

What Does the Income Statement Show?

The income statement shows how profitable a company is by listing its revenue and expenses. Its executive management team can decide, in light of the data, whether to reduce expenses in a particular area, for example, in operating expenses or cost of goods sold. In the event that interest costs are rising, executives can work with a bank to refinance its loans, for instance.

Is the Income Statement Prepared First?

A company normally prepares the income statement first to break down its revenue and expenses. The things listed here help to finish up different parts of the financial statement, for example, the balance sheet and shareholders' equity.

The income statement contains things pertinent to the balance sheet. Net income that is reported for a period will likewise show up as part of retained earnings, which are listed under shareholders' equity.

What Is Not Shown in the Income Statement?

Things that don't fall inside the rules of generally accepted accounting principles are not displayed in the income statement. Non-GAAP things derived from the income statement incorporate adjusted EBIT and EBITDA. Net income likewise wouldn't show cash flow, assets and liabilities, and different things that would show up in the cash flow statement and the balance sheet.