You've successfully subscribed to The Finbox Blog
Great! Next, complete checkout for full access to The Finbox Blog
Welcome back! You've successfully signed in.
Success! Your account is fully activated, you now have access to all content.
Income Statement Explained: Definition, Real Examples, Analysis, And More

Income Statement Explained: Definition, Real Examples, Analysis, And More

. 4 min read

In this article

What Is An Income Statement?

The income statement, or profit and loss statement, is one of the main financial statements of a business that shows its profit or loss for a specific period. Public companies operating in the United States are required by law to provide their income statement at the end of every quarter and fiscal year.

The income statement starts with a company's revenue and ends with its net profit after subtracting operating and non-operating expenses, such as cost of goods sold or SG&A (Selling & Administrative expenses). Having a complete understanding of the income statement is essential for investors to analyze a company's long-term outlook.

income statement example infographic


Income Statement: A Real Example

Now that you know what an income statement is, let's take a look at a real example of an income statement. Here's an example of Apple’s income statement, or consolidated statement of operations, for the years 2017–2019.

income statement real example


Source: Apple's 10K, Oct 31, 2019

Income Statement Items

As discussed above, the income statement starts with a company's revenue and ends with its net profit after subtracting operating and non-operating expenses. Here, we'll analyze what goes on an income statement and discuss the various income statement items.

Note: The income statement may vary slightly for companies operating in different sectors and industries. For instance, companies operating in the banking industry don't have the cost of goods sold on their income statement.

Sales/Revenue

Revenue is the top-line of the income statement and represents the company's income from sales of goods or services before subtracting any kind of expenses. If a company generates sales from different sources, it can list them in the income statement, as Apple does:

revenue on the income statement real example


Source: Apple's 10K, Oct 31, 2019

Cost Of Goods Sold (COGS)

The cost of goods sold line, or cost of sales, represents the total costs of manufacturing the products sold by the company. It includes items like labor and raw materials.

Gross Profit or Gross Margin

The gross profit is equal to revenue minus cost of goods sold. It is also known as gross margin, as you can see in the Apple statement below. This may generate some confusion for novice investors since the term gross margin is also used to indicate a company's gross profit margin as a percentage of revenue.

gross profit on the income statement


Source: Apple's 10K, Oct 31, 2019

Operating Expenses

Operating expenses represent the costs incurred by a company to run its core operations. The most common operating expenses are SG&A expenses (Selling, General & Administrative expenses), that consist of non-manufacturing costs like marketing, accounting, human resources, and more. Another typical operating expense is R&D (Research & Development), which consists of costs to design new products, technologies, or services.

operating expenses on the income statement real example


Source: Apple's 10K, Oct 31, 2019

Non-Operating Expenses

Non-operating expenses are costs that are not related to a company's core operations. Interest expense is one of the most common non-operating expenses.

Income Tax

The income tax line represents the total amount of taxes paid by the company during a specific period.

income tax on the income statement real example


Source: Apple's 10K, Oct 31, 2019

Net Income

Net income, or net profit, is what remains for the business after subtracting all costs and taxes.

net income on the income statement real example


Multi-Step Income Statement

Apple's income statement that we've just analyzed is a multi-step income statement. A multi-step income statement categorizes a company's expenses into different groups based on their nature. Public companies operating in the United States are required by law to use a multi-step income statement since it provides the most accurate analysis of the business.

multi step income statement infographic


Single Step Income Statement

While a multi-step income statement categorizes a company's expenses into different groups based on their nature, a single-step income statement gets to a company's net income with a simple formula that subtracts all the expenses from the company's revenue.

single step income statement infographic