The income statement focuses on the revenue and expenses of a company during a specified fiscal period. The income statement is one of the three crucial financial statements; others are,
balance sheet and the cash flow statements. All three of these statements are used for reporting the financial performance of a company over a specified accounting period.
The focus of the income statement is on four key items - revenue, expenses, gains, and losses. Income statement trickles down to earnings(loss) per share from total revenue to net income(loss).
The following information will be available in the income statement, but the format may vary depending on the local regulatory requirements.
Revenue from the primary activities is often called as operating revenue. For example a company like TESLA, which is in cars manufacturing and solar power business, operating revenue will be from selling cars and solar panels and related other accessories.
Revenue from secondary activities of the business is called non-operating revenue. These revenues are from the earnings which are outside of the primary activities of the company. Possible non-operating revenues are, interest income earned from business capital in the bank, rental income from business property, income from royalty payments for allowing others to use the patents.
Gains refer to the net money made from other activities, like the sale of long-term assets or one-time non-business activities like selling a real estate of a company.
Expenses from Primary activities:
All the expenses incurred from earning the normal operating revenue linked to the primary activity of the business. They include the cost of goods sold (COGS), selling and general administrative expenses, depreciation or amortization, and research and development (R&D)
Expenses linked to secondary activities:
All expenses incurred for non-core business activities, like interest paid on loan money.
All expenses that go towards a loss-making sale of long-term assets, one-time costs, or expenses towards lawsuits.
Net income is a difference between Revenue plus gains of the company and expenses plus losses of the company for any given fiscal period.
Total Revenue = Revenue + Gains
Total expesne = Expenses + Losses
Net Income = Total Revenue - Total Expense
6.Earnings Per Share(EPS):
EPS will be calculated by dividing Net income of the company by the total number of shares outstanding for a given fiscal period.
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