What is an income statement?
The income statement (also called the profit and loss statement, or P&L) reports a company’s financial performance over a period — typically a quarter or year. Under IFRS (IAS 1) and US GAAP (ASC 220), it presents revenue, expenses and the resulting profit or loss, structured to make the relationship between top line and bottom line transparent.
Standard structure
- Revenue / Net Sales: the top line — consideration earned in the period.
- − COGS: direct costs to produce the goods or deliver the service.
- = Gross profit: production-level economics.
- − Operating expenses (SG&A, R&D, D&A): running the business.
- = Operating profit (EBIT): profit from core operations.
- ± Interest, other income/expense: financing items.
- = Pre-tax income.
- − Tax expense: current and deferred.
- = Net income (bottom line).
Income statement vs. related statements
- Income statement vs. balance sheet: the income statement covers a period; the balance sheet is a point in time.
- Income statement vs. cash flow statement: income statement is accrual-based; cash flow statement reconciles accrual profit to cash movements.
- P&L vs. statement of comprehensive income: the latter adds items like FX translation and remeasurements of pension plans bypassing P&L.
What founders should track
Beyond GAAP net income, investors look at: gross margin trend, operating leverage (revenue growth vs. opex growth), Rule of 40 for SaaS (growth + profit margin), and the quality of one-off items below the operating line. In due diligence expect adjusted-EBITDA bridges from reported numbers.
Do: publish a monthly P&L with comparable prior-period columns and a quarterly variance commentary.
Don’t: push recurring costs into “non-recurring” buckets to flatter the operating margin — auditors and DD advisors will normalise them back.