The Finance Professor: How to Read an Income Statement

The impact of nonrecurring items is not separated on the income statement but is frequently disclosed in press releases, conference calls and notes to financial statements. Why? To help the income-statement reader filter out these items, which may materially impact the company's EPS but are not as relevant to the continuing operation of the company for comparative purposes.

This week's homework:

• Obtain an income statement from two of the companies discussed in this lesson (McDonald's, BJs, CVS Caremark, Citigroup, Merrill Lynch) and an income statement from one of your own current (or potential) individual stock holdings.
• Compare and contrast the financial presentations from company to company and industry to industry.
• Become familiar with the unique line items presented in the income statements per company and per industry.
• Understand what is driving the EPS for each company.
• Ascertain the source of discontinued operations or nonrecurring items.

As always, you can email me your homework and thoughts on the subjects covered in this or previous articles. I will compile the best ideas in a future module of TheStreet.com University.

Next: Risk.