Income Statement (Income Statement) is not just numbers, but a clue to investment decisions.

Why do investors need to read the Income Statement?

For anyone looking to assess a company’s financial health or decide whether to invest, the Profit and Loss Statement or P&L( is the first document to read because it straightforwardly tells the story of whether the company can generate profit, where the profit comes from, and where expenses are allocated.

What is a profit and loss statement? Let’s look at it simply.

Income Statement or Profit and Loss Statement summarizes a company’s performance over a specified period), such as monthly, quarterly, or annually(, showing how much revenue was earned, how much was spent, and whether there was a profit or loss.

Where is it really important?

• Shows profitability ability: Whether you are an executive or an investor, you want to know if the business is profitable.
• Helps evaluate efficiency: By examining revenue and expenses, you can identify which parts of the business are performing well and which need improvement.
• Supports future planning: Data from the income statement helps management develop effective strategies to adapt to market changes.

The basic structure of the Income Statement: a simple formula but powerful

Calculating the income statement uses basic principles:

Total Revenue - Total Expenses = Profit or Loss)

• Total Revenue (Total Revenue): All money earned from sales of goods, services, and other income sources.
• Total Expenses (Total Expenses): All money spent to operate the business, from production costs, rent, salaries, to marketing expenses.
• Profit or Loss (Profit or Loss): If revenue exceeds expenses → profit | if expenses exceed revenue → loss.

Full-format Income Statement: the real analytical tool

When viewing a detailed profit and loss statement, you see the breakdown of profit at each level:

What does each profit level tell us?

( 1. Gross Profit )Gross Profit###: Basic sales ability

Calculation: Revenue - Cost of Goods Sold = Gross Profit

This metric shows how much money remains from sales after paying for production. A high gross profit indicates the company can set prices significantly above costs.

( 2. Operating Profit / EBIT )Operating Profit / EBIT###: Management efficiency

Calculation: Gross Profit - Administrative Expenses - Selling Expenses = EBIT

Here, you see the company’s true operational performance. A good operating profit indicates effective cost management and revenue generation.

( 3. Net Income )Net Income###: The “real” profit left over

Calculation: Total Revenue - Total Expenses (including taxes) = Net Income

This is the core of the Income Statement. Net profit shows how much profit the company actually retains after deducting all expenses, including taxes.

Components to know in each part

( Revenue )Revenue###

• Operating Revenue (Operating Revenue): Income from sales of goods and services, the main revenue source.
• Non-Operating Revenue (Non-Operating Revenue): Interest, dividends, rental income, etc., not from core business activities.

( Expenses )Expenses###

• Cost of Goods Sold: Raw materials, labor, manufacturing costs to produce goods.
• Selling Expenses: Advertising, marketing, commissions, transportation.
• Administrative Expenses: Salaries of management, office rent, supplies.
• Financial Expenses: Interest paid, bank fees.
• Income Tax: Taxes payable to the government.

Two formats of the income statement: choose what suits you

( Format 1: Report Form )Report###

A simple linear structure: