Simple Income Statement Structure Breakdown (By Each Component)

The income statement is one of the three major financial statements, focusing on a company's income and expenses over a specific period. Its structure follows this formula:

Net Income = (Total Revenue + Gains) - (Total Expenses + Losses)

What Is An Income Statement?

• It's one of three primary financial statements.    
• Focuses on income and expenses over a specific period.
• Aims to report a company's net income or earnings.
• Essential for assessing financial performance.

Income Statement Structure

• Revenue: Total sales or service income.
• Costs of Goods Sold (COGS): Direct costs related to revenue.
• Gross Profit: Revenue minus COGS.
• Operating Expenses (e.g., R&D, Selling & Admin): Indirect costs.
• Operating Income: Profit before non-operating items.
• Other Income/Expenses (e.g., Interest, Taxes): Non-operating items.
• Profit or Net Income/Loss: The bottom line.

Breakdown Of Each Component

• Revenue: Sales or service income, often the top line.
• COGS: Direct costs linked to revenue.
• Gross Profit: Income minus direct costs.
• Operating Expenses: Indirect operational costs.
• Depreciation and Amortization: Capital asset allocation.
• Interest: Cost of borrowing money.
• Income Before Income Taxes: Profit before taxes.
• Income Taxes: Taxes paid for the period.
• Net Income: The bottom line profit.
• Earnings per Share (EPS): Profit allocated per share.

Understanding the income statement's components helps evaluate a company's financial health and profitability. Different industries may have variations in their income statement structure.

Tune in next week to learn more about the balance sheet.