How to analyze an income statement

how to analyze an income statement

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Write in the statement title, the company name and the date the statement is being prepared. After this information is documented on the form, generate an operating statement. You'll need the financial information of the business, including all revenue and expense amounts, to prepare this document.

List all the revenues from the company that occurred during this particular period of time. This includes net sales amounts, rental income and interest income. Add up the total of all revenues and place the total underneath all revenue items.

Write in the cost of goods sold. This amount is used for companies with inventories and manufacturing companies, and represents the total cost of the goods the company sold. Subtract this amount from the total revenue amount. This

amount represents the company's gross profit margin.

List all expenses individually. Every expense a company has is listed on the operating statement, including depreciation expenses, rent expenses and salary expenses. After all expenses are listed, calculate a total representing total expenses.

Subtract the total expense amount from the gross profit margin. This amount reflects a company's net profit or net loss. If the gross profit margin is higher than the expense total, the company has a net profit. If the gross profit margin is lower than the expense total, the company suffers a net loss. The net profit or loss amount is a vital number for companies. Owners, investors and other stakeholders analyze a company by using this amount as well as other amounts to determine the health of a company.


Category: Forex

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