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Income Statement

Stock investors like to look at the income statement (a.k.a. "earnings statement" or "statement of operations") because it shows the company's "bottom line": its earnings, or profit. Most of the income statement details the company's operations: the yellow zone back in the diagram.

Consolidated Financial Statements
Income Statement
(click on highlighted text for more information)

(dollar figures are in thousands)
2009 2003
Sales Revenue
  Widget Sales $ 12,347 $ 9,746
  Services 6,912 5,688
Total Sales Revenue 19,259 15,434
Sales Costs
  Widget Sales 5,649 4,688
  Services 3,166 2,712
Total Sales Costs 8,815 7,400
Gross Profit 10,444 8,034
  Gross Margin 54 % 52 %
Operating Expenses
  Sales & Marketing 4,078 3,132
  General & Administrative 916 705
  Research & Development 2,364 1,831
Total Operating Expenses 7,358 5,668
Operating Income 3,086 2,366
  Operating Margin 16 % 15 %
Interest Payments to Bondholders 147 253
Earnings Before Taxes 2,939 2,113
Provision for Taxes 1,028 739
Earnings ("net income") 1,911 1,374
  Profit Margin 10 % 9 %
Dividends paid to Shareholders 10 -
Earnings available to Shareholders 1,901 1,374


This company is showing positive earnings. In fact, if you compare the earnings between the two years shown, you'll find that earnings "grew" by 39%. As you might expect, the figures for sales costs and operating expenses are also higher, so the company is probably growing physically as well: in order to make more money, it's increasing its capacity to produce more of whatever it sells.

One important thing that the income statement doesn't show is how the company is paying for this growth. To find that, you need to look at the cash flow statement. Another shortcoming of the income statement is that expense items are only shown "by department" and not "by type". For example, employee salaries make up part of sales cost and part of all items listed under operating expenses; but you can't tell from here how big a part.

Annual Report Basics
Income Statement Basics
CashFlow Basics
Balance Sheet Basics