Understanding how to read an income statement is one of the most useful tools for anyone interested in investing. An income statement, also called a profit and loss statement, gives you a clear picture of how a company is doing financially over a period of time—usually a quarter or a full year. It tells you how much money a company made (its revenue), how much it spent (its expenses), and whether it ended up with a profit or loss (its net income).
The top line of the income statement shows total revenue. This is the amount of money the company earned from selling its products or services before any expenses are taken out. Then come the operating costs—this includes everything from paying employees and buying supplies to marketing and rent. Once all those costs are subtracted from revenue, you get the operating profit. But we’re not done yet. Other costs like interest on debt and taxes are also taken out before you reach the bottom line: net income. That final number tells you whether the company made money or lost money.
Reading an income statement helps you figure out if a company is growing, making smart business decisions, or heading in the wrong direction. For example, if revenue is growing every year but net income keeps shrinking, that might mean expenses are growing too fast. This statement is super important for investors because it shows how well a company is running its business and whether it’s turning its sales into actual profit.
