Understanding the Income Statement: Essential Guide for Evaluating Company Performance

An _____ —also known as the profit and loss statement—is often divided into operating and non-operating sections and provides a summary of the company’s financial performance in terms of revenues and expenses. The income statement helps determine the profitability of the company. It gives information on the earnings before interest, taxes, depreciation, and amortization (EBITDA), which analysts often use to determine the financial strength of a firm.

income statement

The missing term in the above statement is “income statement”.

The income statement is a financial statement that reports a company’s financial performance over a specified period. It shows the revenue earned, expenses incurred, and the resulting net income or net loss. The income statement is an essential financial statement used by investors, creditors, and other stakeholders to evaluate the profitability and financial health of a company.

The income statement is divided into two sections: the operating section and the non-operating section. The operating section includes revenue and expenses that are directly related to the company’s primary business activity, while the non-operating section includes revenue and expenses that are not directly related to the core business activity, such as gains or losses from investments or interest income and expense.

One key metric that can be derived from the income statement is EBITDA, which is a measure of a company’s earnings before deducting interest, taxes, depreciation, and amortization. EBITDA is often used by analysts as a proxy for cash flow and to compare the financial strength of different companies in the same industry.

In summary, the income statement is a crucial financial statement that summarizes a company’s financial performance and helps stakeholders evaluate its profitability and financial health.

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