What is the Income Statement Formula?The term “income statement” refers to one of the three primary financial statements the company uses to summarize its financial performance over the reporting periodA reporting period is a month, quarter, or year during which an organization's financial statements are prepared for external use uniformly across a period of time in order for the general public and users to interpret and evaluate the financial statements.read more. The income statement is also referred to as the statement of earnings or profit and loss (P&L) statement. This income statement formula calculation is done by single or multiple steps. In the case of a single step, the income statement formula is such that the net income is derived by deducting the expenses from the revenues. Mathematically, it is represented as, Net Income = Revenues – Expenses In the case of multiple steps, first, the gross profit is calculated by subtracting the cost of goods soldThe Cost of Goods Sold (COGS) is the cumulative total of direct costs incurred for the goods or services sold, including direct expenses like raw material, direct labour cost and other direct costs. However, it excludes all the indirect expenses incurred by the company. read more from revenues. Then the operating income is computed by deducting operating expensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more from gross profit, and finally, the net income calculation is done by adding operating income and non-operating items. Income Statement Formula is represented as,
The income statement formula under the multiple-step method can be aggregated as below, Net income = (Revenues + Non-operating items) – (Cost of goods sold + Operating expenses) You are free to use this image on your website, templates, etc, Please
provide us with an attribution linkArticle Link to be Hyperlinked Explanation of the Income Statement FormulaUnder the single-step method, the formula for income statement calculation is done by using the following steps:
Example of Income Statement Formula (with Excel Template)Let us take the real-life example of Apple Inc.’s annual reportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more on September 29, 2018. First, fill up the blank spaces based on the following available information. Below is data for the calculation of Apple Inc.’s annual report. Gross Profit Therefore, Gross ProfitGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more can be calculated as, Gross profit = Net salesNet sales is the revenue earned by a company from the sale of its goods or services, and it is calculated by deducting returns, allowances, and other discounts from the company's gross sales.read more – Cost of goods sold = $215,639 Mn – $131,376 Mn Gross Profit for 2016 will be – Gross Profit for 2016 =$84,263 Operating Income Therefore, Operating Income can be calculated as, Operating income = Gross profit – Operating expenses = $84,263 Mn – $10,045 – $14,194 Operating Income for 2016 will be – Operating Income for 2016 = $60,024 Net Income Therefore, Net Income can be calculated as, Net income = Operating income + Non-operating items =$60,024 Mn + $1,348 – $15,685 Net Income for 2016 will be – Net Income for 2016 =$45,687 Similarly, we can calculate gross profit, operating income, and net income for 2017 & 2018, and also, you can refer to the below given excel template for the same. Relevance and Use of Income Statement FormulaUnderstanding the income statement formula is very important for people interested in actively trading in the stock market or analysts who investigate a particular company’s financial performance. Therefore, they must know how to read financial statementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more, including the income statement. One should note that net income is not the same as cash profit. Nevertheless, the ability of a company to generate healthy net income over a long period can be seen as a positive for its stock and bond prices because it is the net income that compensates the shareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more for the risks they have taken. Conversely, if a company cannot generate enough profit, then the value of the stock is likely to plummet. In short, a company with healthy earningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.read more will have higher stock and bond prices. Recommended ArticlesThis article is a guide to the Income Statement Formula. Here we discuss how to calculate Income Statement items like gross profit, operating income & net income, and the practical examples and a downloadable excel sheet. You can learn more about accounting from the following articles –
How do you calculate sales percentage on an income statement?To find the percentage of revenue, divide each line item by the revenue. Multiply the figure by 100 to get a percentage. The percentage of revenue tells how much profit you keep from every sales dollar you earn.
In which statement each item is expressed as percentage of sales?A common size income statement is an income statement whereby each line item is expressed as a percentage of revenue or sales.
Which financial document would show income as a percentage of sales?An income statement is one of the three major financial statements (along with the balance sheet and the cash flow statement) that report a company's financial performance over a specific accounting period.
In which financial statements figures are converted into percentage?Vertical analysis consists of the study of a single financial statement in which each item is expressed as a percentage of a significant total.
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