Reading an Income Statement

An income statement summarizes a company's revenue, costs, and profit over a specific period, and it is one of the three core financial statements used to evaluate a business.

Reading it from top to bottom generally follows the flow of money through the business: revenue comes in, costs are subtracted at each stage, and what remains at the bottom is net income, often called the "bottom line."

• Revenue (top line): total sales generated before any costs are deducted.
• Cost of goods sold: direct costs of producing what was sold, subtracted from revenue to get gross profit.
• Operating expenses: costs like salaries, marketing, and rent that are not directly tied to production.
• Operating income: profit after operating expenses, before interest and taxes.
• Net income: what remains after interest, taxes, and other items — the final profit or loss figure.