What is the Income Statement?

There are three important financial statements in a company's report: income statement, balance sheet, and cash flow. The income statement is also referred to as the "statement of operations," "statement of earnings," or "profit and loss (P&L) statement," which presents information on the financial results of a company's business activities over a period of time. It tells you how much revenue the company generated and what costs it incurred in connection with generating that revenue, in other words, its profitability and future growth.

We made an infographic to explain the structure and composition of the income statement.

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The income statement contains a complicated calculation process from revenue to net income, but there is a basic equation: net income = revenue – expenses. A key takeaway is that operating revenue is not the only source of revenue while non-operating revenue is included.

Investment analysts and investors are fond of income statements, as equity markets often reward relatively high- or low-earnings growth companies with above- or below-average valuations, and, because valuation models' inputs often include earnings estimates.