How to Read a Company Income Statement

Stock investing involves owning an interest in a public company and evaluating both the business and the price paid for that ownership. This guide explains the key concepts in practical terms.

What an income statement shows

An income statement summarizes a company’s revenue, expenses and profit or loss over a period of time. It helps investors see how much the business sold and what remained after costs.

Revenue: the top line

Revenue represents money generated from the company’s business activities before expenses are deducted. Investors often compare revenue across several periods to understand growth or contraction.

Expenses and operating income

Expenses can include the cost of producing goods or services, selling and administrative costs, research and development, depreciation and other items. Operating income reflects profit from operations before certain non-operating items and taxes.

Net income: the bottom line

Net income is the amount remaining after applicable expenses, interest, taxes and other items. A profitable quarter does not necessarily mean cash increased by the same amount because accounting income and cash flow are different concepts.

Earnings per share

Earnings per share, or EPS, generally expresses earnings attributable to common shareholders on a per-share basis. Investors should note whether they are looking at basic or diluted EPS.

Look for trends and context

One reporting period can be affected by unusual events. Compare multiple periods, read the footnotes and management discussion, and consider the income statement alongside the balance sheet and cash-flow statement.

Educational note: This article is for general educational purposes and does not provide individualized investment, tax, or legal advice. Investing involves risk, including possible loss of principal.