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Income Statement

The income statement (profit or Loss) is a key financial report which includes a company’s revenues, expenses and gains/losses all within a specified time period. These records show the company’s ability to both generate profit and manage its expenses. For analysts, this a great tool to use as a financial performance indicator of a company over a given time as it provides relevant information, including the company’s turnover during a financial year. It is prepared according to IFRS or US GAAP accounting principles, revenue recognition, matching costs and expenses to ensure profits are calculated to reflect the economic performance of the business. 

Key Elements

Structure of an Income Statement


This is the total income generated from sales within a particular period. It can be seen as the money earned directly from the company’s goods/services it offers. Rules from IFRS 15 [US GAAP needs adding as well] govern when revenue should be recognized.

Cost of Goods Sold (COGS)

These are costs directly associated with the goods or services provided. Such costs might include direct labour cost, materials or direct overheads. The main understanding point is that these costs are directly proportional to revenue; this means that when revenue increases so too will these costs.

Gross Profit

Simply looks at the profit generated by a company from its main costs and income attributed from its goods or services. This can be calculated by subtracting the COGS from the revenue.

Operating Costs

This are the costs which are required to generate the sales and flow of income for the company but not directly associated with the goods/services. Such examples may include rent, advertising, utilities or insurance.

Operating Profit

This can be viewed as the income earned from the company’s core activities. This is calculated by subtracting the operating costs from the gross profit.

Equity Income

Lots of companies might have non-controlling investments in a business and as such will have part ownership rights. They are entitled to any profits if their equity investment produces a positive net income.

Interest Income

This income is shown on the income statement of a company from debt financial investments and deposit accounts.

Interest Expense

This expense is shown on the income statement of a company from debt or capital leases.

Income Tax Expense

An unavoidable expense outside the control of the company, it varies on different tax rates but will be a percentage of pre-tax profit. The expense is disclosed separately on the statement due to this.

Net Income

This is the net earnings for the shareholders of the company in a given period once all expenses are included. This figure will be the value before any dividend pay-outs.

Non-Controlling Interests

The proportion of profits attributable to shareholders in a subsidiary of the business who do not have controlling. 

Example of an Income Statement

The Coca Cola Company – Income Statement 2017 Extract

The income statement always follows this general outline by starting with revenue (known as the top line) and subtracting each of the expenses incurred by the business. The difference or final figure is the net income and will always show at the bottom of the statement. This figure can also be known as the “bottom line”. 

Above is an example of Coca Colas’ income statement, you can see it outlines the revenue first, followed by all expenses. The expenses which are most related to the goods/services are at the top while the costs less associated with the products are further down. For example “Income taxes from discontinuing operations”.

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