The income statement reports a company’s financial performance over a specific accounting period and would usually include the following line items:
Revenue / Sales
A detailed breakdown on Revenue can be found here.
Cost of Good Sold (COGS)
A detailed breakdown on Cost of Goods Sold can be found here.
Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. Gross profit will appear on a company’s income statement and can be calculated by subtracting the cost of goods sold (COGS) from revenue (sales). These figures can be found on a company’s income statement.
Selling General & Administrative (SG&A) Expense
Selling, general and administrative expense (SG&A) is reported on the income statement as the sum of all direct and indirect selling expenses and all general and administrative expenses (G&A) of a company. SG&A includes all the costs not directly tied to making a product or performing a service. That is, SG&A includes the costs to sell and deliver products and services and the costs to manage the company.
EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances. It excludes the cost of capital investments like property, plant, and equipment.
This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings.
Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy. Depreciation represents how much of an asset’s value has been used up. Depreciating assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use.
Amortization is an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time. In relation to a loan, amortization focuses on spreading out loan payments over time. When applied to an asset, amortization is similar to depreciation.
Earnings before interest and taxes (EBIT) is an indicator of a company’s profitability. EBIT can be calculated as revenue minus expenses excluding tax and interest. EBIT is also referred to as operating earnings, operating profit, and profit before interest and taxes.
An interest expense is the cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. It represents interest payable on any borrowings – bonds, loans, convertible debt or lines of credit. It is essentially calculated as the interest rate times the outstanding principal amount of the debt. Interest expense on the income statement represents interest accrued during the period covered by the financial statements, and not the amount of interest paid over that period.
Taxes are mandatory contributions levied on corporations by a government entity—whether local, regional or national.
Corporate taxes are paid on a company’s taxable income.
Earnings Before Interest after Taxes (EBIAT) measures a company’s profitability without taking into account its capital structure, which is the combination of debt and stock issues that is reflected in debt to equity. EBIAT is a way to measure a company’s ability to generate income from its operations for the period being examined while considering taxes.
Net Income (NI)
Net income (NI), also called net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. It is a useful number for investors to assess how much revenue exceeds the expenses of an organization. This number appears at the bottom of a company’s income statement, and is also an indicator of a company’s profitability.