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Part: four More Tools > Income Statement

Income Statement

The income statement, sometimes called the profit and loss statement, shows the firm's sales and expenses, for the quarter or fiscal year, and for the year-ago period. Here are terms which typically appear on the income statement.

  • Revenues: the company's total sales for the period. Sometimes another other revenue figure is included showing sales unrelated to its main business.

  • Cost of sales: the direct material and labor costs of making or acquiring the products sold. Cost of sales often includes deprecation and amortization, but it doesn't include marketing, R&D, or other indirect costs.

  • Gross profit: Revenues minus cost of sales.

  • Research and development: Costs of developing new products and services.

  • Sales and marketing: Often combined with general and administrative costs.

  • General and administrative: All other expenses that are not listed separately.

  • Depreciation and amortization: A noncash accounting entry. Depreciation represents the loss in value of hard assets such as buildings and machinery over the reporting period. When a company makes an acquisition, the excess paid over the acquired firm's book value is termed goodwill. Until recently, the acquiring company was required to amortize the goodwill over a specified period. That requirement was changed in 2002, and firms are no longer required to amortize goodwill. Note: some companies include D&A in the cost of sales.

  • Interest expense: Interest on loans acquired to finance the firm's main business.

  • Total operating expenses: the total of all expenses listed above including cost of sales.

  • Operating income: revenues less operating expenses, also known as EBIT.

  • Interest income/expense: interest income or expenses not associated with the company's main business.

  • Income before tax: Operating income less interest expense.

  • Income tax: Taxes due for period.

  • Net income: Income before tax less income tax. This is the bottom line net profit.

  • Average number of shares: The average number of shares outstanding during the period.

  • Earnings per share: Net Income divided by average number of shares.



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