Getting Started: The Income Statement
Making a profit: It's the hallmark of a successful business. So whether you're thinking about buying stock in a company
, or you want to make sure that a current investment is still a good one, the income statement is a really important thing to look at. Now let's take a look at how to make the income statement make a profit for you.
is concerned, it's called an income statement, so that's what we'll call it.
Again, a company's ability to turn a profit is paramount. Who wants to invest in a company that's losing money? Because of this, net income, the number at the bottom of the income statement ("the bottom line," see earnings
), can have a dramatic effect on a company's stock price.
Why?
Revenues - Expenses = Profit!
In essence, companies get their profit (or income) by taking their revenues (money they bring in) and subtracting their expenses (money they spend).
Despite the complexity in many large companies'
income statements, the same basic principle applies: Revenues - Expenses = Profit.
This is generally also the way income statements are set up. There are two basic types of income statements, the single-step and multi-step.
Singe-step income statements simply follow the equation of revenue minus expenses equals profit. For example:
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