An Introduction to the Income Statement

The income statement is part of the financial statement that is issued by a company. As an investor, you can find a lot of important information in this document. You could spend a lot of time learning about all of the different parts of an income statement. Here are the basics of the income statement that are relevant to investors.

Income Statement

The income statement is a document that is constructed with information directly from the ledgers of a company. They take a lot of different information from the ledgers and journals and put it into a neat, concise form for investors to read. This document is used in order to gauge the financial health of a particular company. By looking at this document, you will be able to get detailed information about the company and how it is handling its business. If you are an investor and you want to do your homework on a particular company, the income statement should be an important part of your research. Income statements are going to cover a certain amount of time in the business. For example, this may be a summary of the last month or the last year. When you are examining the statement, you need to make sure that you know how long of a period you are looking at. 

Total Revenues

One important section of the income statement is total revenues. This section lists out all of the different revenues that are generated by the company. As an investor, it is nice to see exactly how much money a company is bringing in. They will typically classify the revenue into different groups. For example, you will see revenue that is from regular business activities and revenue that comes from irregular actions. You are more concerned with the regular income for your analysis. 

Total Expenses

Another important section to look at is the total expenses. This is the section that details all of the expenses that are incurred in order to run the business. This might include things like wages, rent, utilities, and miscellaneous expenses.

Net Income

After looking at the total revenues and total expenses, you can look at the net income section. This is basically a number that is created by subtracting the total expenses from the total revenues. This tells you how much profit the company has generated after paying for their expenses.

EBITDA

One way that many investors analyze and income statement is to use EBITDA. The stands for "earnings before interest, tax, depreciation, and amortization. This tool can be used in order to gauge the profitability of a company after cost of goods sold and operating expenses. When you look at an income statement, there are most likely not going to have a column for EBITDA. Therefore, you will have to calculate it on your own. In order to do this, you can take the value for depreciation and amortization and add it to operating income. This is a good gauge of how profitable the company actually is. 

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