The Finance Professor: How to Read an Income Statement

The most recent installment of the Finance Professor kicked off our look at how to start analyzing the financial statements of public companies . We covered where to locate a company's financial information and reports, and what to look for once you find this data. Now we're going to take the next step in this series of lessons and focus in on how to read a company's income statement (or profit and loss statement, the P&L).

Mind the GAAP

Income statements will vary from company to company and industry to industry. As such, the statement might seem like one big salad of information that we must learn how to sift through to better understand a company's operating results. However, there is one constant that always guides us in the preparation and understanding of financial statements such as the income statement. This constant is the application of generally accepted accounting principles, or GAAP. ...