Glossary
Income statement
The financial statement that reports revenue, expenses and profit over a period, ending in net income and EPS.
On this page
The income statement, also called the profit and loss statement (P&L) or statement of operations, reports how much a company sold and what it spent over a period, usually a quarter or a fiscal year, and what was left as profit. It is one of the three core financial statements, alongside the balance sheet and the cash flow statement. Most widely quoted numbers, including revenue growth, margins and earnings per share, come from it.
How it is laid out
The statement reads like a staircase, subtracting one category of cost at each step:
- Revenue (sales)
- minus cost of goods sold = gross profit
- minus operating expenses (research and development, selling, general and administrative) = operating income
- plus or minus interest and other items = pre-tax income
- minus income tax = net income
- net income ÷ weighted average shares = EPS, shown basic and diluted
Reading it well
- Accrual basis. Revenue and costs are recorded when earned or incurred under GAAP, not when cash changes hands, so profit and cash can diverge. Compare with the cash flow statement.
- Trends beat snapshots. Look at several years and quarters, and at margins rather than raw dollars.
- One-time items such as impairments, restructuring or gains on asset sales can swing net income; read the notes and segment data.
- Adjusted figures in press releases are non-GAAP and must be reconciled to the statement.