The income statement is one of the most important financial documents. This document allows you to see the results of the company’s financial activities for a certain period of time.
It contains information about the company’s income and expenses, and also allows you to determine the net profit or loss for the period under review. Note that the p&l statement gives an idea of how effectively the company manages its resources and allows you to assess its overall financial condition.
Main components
The presented report consists of the following components:
- income;
- expenses;
- net income;
- net capital.
Income is the financial resources that the company receives from its trading operations during the reporting period. Income can consist of revenue from the sale of goods and services, interest income, investment income and other sources of income.
Expenses are all costs associated with running a business. For example:
- wages;
- rent of facilities;
- advertising costs;
- utilities, etc.
They are divided into direct and indirect, fixed and variable costs.
Net income is the difference between revenues and expenses. It shows how much money a company has left after deducting all expenses. If revenues start to exceed expenses, the company makes a profit. If expenses exceed revenues, the company makes a loss. Net capital is defined as the total value of a company’s assets minus its liabilities. This indicator allows you to assess how resilient a company is to financial shocks and whether it can withstand a financial downturn. Thus, the income statement is an essential tool for making informed management decisions. This report allows you to analyze in detail the company’s financial results for a certain period, and this helps to identify trends, strengths and weaknesses of the business.
