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Disposals of investments

Income Statement

What it is:

The income statement is one of the three primary financial statements used to assess a company’s performance and financial position (the two others being the balance sheet and the cash flow statement). The income statement summarizes the revenues and expenses generated by the company over the entire reporting period.

How it works (Example):

The income statement is also known as a profit and loss (P&L) statement, statement of earningsstatement of operations or statement of income

The basic equation on which an income statement is based is:

Revenues – Expenses = Net Income

All companies need to generate revenue to stay in business. Revenues are used to pay expenses, interest payments on debt and taxes owed to the government. After the costs of doing business are paid, the amount left over is called net income. Net income is theoretically available to shareholders, though instead of paying out dividends, the firm’s management often chooses to retain earnings for future investment in the business.

Income statements are all organized the same way, regardless of industry. The basic outline is shown in the following example:

Income Statement for Company XYZ, Inc.
for the year ended December 31, 2008

Total Revenue                        $100,000 

Cost of Goods Sold               ($ 20,000)
Gross Profit                             $ 80,000

Operating Expenses      
 Salaries          $10,000    
 Rent               $10,000
 Utilities            $  5,000
 Depreciation   $  5,000
Total Operating Expenses    ($ 30,000)
Operating Profit (EBIT)           $ 50,000

Interest Expense                    ($ 10,000)
Earnings before tax (EBT)     $ 40,000

Taxes                                        ($ 10,000)
Net Income                                $ 30,000

Number of Shares Outstanding      30,000

Earnings Per Share (EPS)             $1.00

[InvestingAnswers Feature: Financial Statement Analysis For Beginners]