Explanation of the Income Statement

The income statement (sometimes called the profit-and-loss statement or P&L) is the first financial statement that you'll find in the annual report. It shows the revenue, expenses and profit for the company during the past year. You can use the income statement to figure out cash flow, profit margins, and other financial metrics for the business. Most importantly, though, the income statement contains the proverbial bottom line: profits.

You should be careful when looking at the income statement since companies can sometimes engage in gymnastics with their accounting methods.

The statements are audited by outside firms, however, so there should be footnotes or other markers whenever anything deviates from standard accounting practices. The following list will teach you how to read an income statement and use the information from them to make some simple calculations regarding the firm's operations.

By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

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