Every public company is mandated to file periodic financial statements. These are part of every company's quarterly and annual reports. These financial statements also appear in documents such as a stock offering or the filings that accompany a merger or acquisition. The all-important financial statements are a balance sheet, cash flow statement, and an income statement (also known as a profit and loss statement.) Each provides a specific sort of view on the company's performance over the period covered in the filing, whether that is the previous fiscal quarter or year.
The income statement, also know as a profit and loss statement, is a vital part of financial analysis, as it provides the all-important bottom line. That is, in its simplest form, the single-step income statement, the accountant simply adds revenues with other gains and subtracts them from the sum of expenses and losses. On the other hand, the multi-step method for creating income statements, on the other hand, provides more detail and distinguishes the individual sorts of revenue, expenses, and other losses. For example, on multi-step income statements, items such as operating expenses will be distinct from cost of goods sold. In a similar fashion, a multi-step income statement will delineate net income into categories such as income from investment and sales revenue. While a single-step income statement is often adequate for many financial analysts, a multi-step income statement provides the sort of detail a managerial accountant would need.
The income statement covers several aspects of the company's operations including:
- Gross Profit
- Rent, Utilities, and other Expenses
- Cost of Goods Sold
- Profit or Loss
- Net Income
- Income Tax Expense
- General and Administrative Expenses
Since this filing covers the all-important issues of profits and loss, it is tempting to consider this the most important statement. However, while analysts rely on the income statement for vital data, it must be placed in the context of the other two filings.