Crash Course in Accounting and Financial Statement Analysis, Second Edition

What Is the Income Statement?

The income statement is a financial report that depicts the operating performance of a company (i.e., revenues less expenses generated; profitability) over a specific period of time (typically a quarter or year) (Exhibit 5.1 and 5.2).

Exhibit 5.1. Major Components of a Typical Income Statement

Net Revenues	Total dollar payment for goods and services that are credited to an income statement over a particular time period.
Cost of Goods Sold (COGS)	Cost of Goods Sold represents a company’s direct cost of manufacture (for manufacturers) or procurement (for merchandisers) of a good or service that the company sells to generate revenue.
Gross Profit	Revenues — Cost of Goods Sold
Selling, General & Administrative (SG&A)	Operating costs not directly associated with the production or procurement of the product or service that the company sells to generate revenue. Payroll, wages, commissions, meal and travel expenses, stationery, advertising, and marketing expenses fall under this line item.
Research & Development (R&D)	A company’s activities that are directed at developing new products or procedures.
Earnings before Interest, Taxes, Depreciation & Amortization (EBITDA)	Gross Profit — SG&A — R&D. EBITDA is a popular measure of a company’s financial performance.
Depreciation & Amortization (D&A)	The allocation of cost over a fixed asset’s useful life in order to match the timing of the cost of the asset to its expected revenue generation.
Other Operating Expenses/Income	Any ...