HBR 20-Minute Manager Boxed Set (10 Books) (HBR 20-Minute Manager Series)

Finance Basics

14

How does an income statement present this profi t

picture? It begins with the company’s revenue or total

net sales (same thing) during the period it covers. It

then lists all the various costs, including the cost of

making the goods or delivering the services, overhead

expenses, taxes, and so on, and subtracts them from

revenue. The bottom line—what’s left over—is the net

income, or profi t. (See fi gure 1, “Amalgamated Hat

Rack income statement.”)

Let’s look more closely at the line items that appear

on the income statement. Cost of goods sold (usually

abbreviated as COGS) is what it cost Amalgamated

to manufacture the hat racks. That includes raw ma-

terials, labor, and any other costs directly related to

production.

Subtract COGS ...