Income Statement

Income statement is a financial statement that shows profits from the company's operations and financial activities. This includes revenues, expenses, gains and losses.

This is calculated:

Net Income = [[#Revenue]] - [[#Expenses]]

Sales/Revenue - COGS = Gross Profit

Gross Profit - OpEx = EBIT (Earnings before Interest and Tax)

EBIT - Interest - Tax = Net Income

Revenue

Revenue is the total amount of money received by the company for goods sold or services provided, measured over time.

This includes:

• Cash sales, the immediate payment at time of purchase
• Credit sales, allowing customers to pay at a later date, creating Accounts Receivable.
  • Revenue is recognized when earned (goods delivered or services provided), regardless of when cash is received
• Commission
• Fees

Companies grow revenue by increasing sales volume, raising prices, expanding product lines, entering new markets, improving marketing strategies, and enhancing customer retention.

They can also grow revenue by investing retained earnings in expansion, new product development, and increased production capacity, resulting in increased sales and thus revenue.

Expenses

Expenses are money spent or costs incurred to generate revenue, occurring over one time period.

This includes:

• Cost of Goods Sold (COGS)
• Operating Expenses (SG&A)
• Interest expense
• Income tax

Automobile companies have bigger raw material expenses than clothing, for e.g., because auto manufacturing requires substantial raw materials like steel, aluminum and electronics.

Clothing retailers, for e.g., have high marketing and selling expenses because they have to invest in product differentiation through marketing, advertising and brand promotion.

Profits

Profits are the financial gain when revenue exceeds expenses. They measure the financial success of a business by showing the excess of revenue over expenses during a specific period.

Profit can increase by:

1. Increasing revenue (through higher sales volume or prices)
2. Decreasing expenses (through cost reduction or improved efficiency)

Profit can decrease by:

1. Decreasing revenue (through lower sales volume or prices)
2. Increasing expenses (through higher costs or reduced efficiency)

Gross Profit = Revenue - Cost of Goods Sold

Gross profit is the difference between revenue (sales) and cost of goods sold (COGS), representing the profit before operating expenses.

EBIT

EBIT = Gross Profit - OpEx

Expenses before Interest and Tax is operating profit before interest expenses and income taxes are deducted, representing the company's operational profitability.

Net Income

Net Income = EBIT - IntEx - Tax

Net income is the final profit figure after all expenses, including operating expenses, interest, and taxes, have been deducted from revenue.