Introduction to Understanding the Income Statement

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This tutorial will help you to use company earnings and loss reports as part of your decision-making process when selecting investments.

What you will learn

  • The Corporate Income Statement
  • The Income Statement: Gross Profit on Sales
  • The Income Statement: Operating Income
  • The Income Statement: Earnings before Interest and Taxes
  • The Income Statement: Net Earnings (or Loss)
  • The Income Statement: Retained Earnings
  • Income Statement Mnemonics

What do you know?

Introduction to Understanding the Income Statement

A company’s income statement is a record of its earnings or losses for a given period. It shows all of the money a company earned (revenues) and all of the money a company spent (expenses) during this period. It also accounts for the effects of some basic accounting principles such as depreciation.

The income statement is the basic measuring stick of profitability. It is, therefore, of importance to investors. A company with little or no income has little or no money to pass on to its investors in the form of dividends. If a company continues to record losses for a sustained period, it could go bankrupt. In such a case, both bond and stock investors could lose some or all of their investment. On the other hand, a company that realizes large profits will have more money to pass on to its investors.