Understanding the Income Statement: A Comprehensive Guide to Assessing Financial Health and Profitability.

A financial statement showing the revenue and expenses for a fiscal period

Income statement

The financial statement that shows the revenue and expenses for a fiscal period is called the income statement. Also known as the profit and loss statement or P&L statement, the income statement is one of the three primary financial statements (along with the balance sheet and cash flow statement) used to assess a company’s financial health.

The income statement typically shows the following:

1. Revenue: This is the total income or sales earned during the fiscal period. It includes all money earned from the sale of goods or services.

2. Cost of Goods Sold (COGS): This is the direct cost associated with producing the goods or services sold during the fiscal period. It includes things like labor, materials, and manufacturing costs.

3. Gross Profit: This is the difference between revenue and COGS.

4. Operating Expenses: These are the expenses associated with running the business such as rent, salaries, insurance, and utilities.

5. Operating Income: This is the gross profit minus operating expenses.

6. Other Income and Expenses: This category includes items such as interest income, interest expenses, gains or losses from the sale of assets or other non-operating activities.

7. Net Income: This is the final result of the income statement and indicates whether the company made a profit or a loss during the fiscal period. It is calculated by subtracting all expenses from the revenue.

Overall, the income statement provides valuable insight into a company’s profitability, operational efficiency, and long-term financial viability. It is an important tool for investors, creditors, and other stakeholders in evaluating the company’s financial performance and making decisions about future investments or lending decisions.

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