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Income Statement
This statement shows how much revenue a company received and the expenses a company incurred during a given period. The difference is the company's profit or loss. The proof of a company's financial strength is earnings power: how much it earns and how consistently it earns. However, investors need to be aware of the myriad of reporting methods used and be wary when methods of calculating revenues and expenses change.
It is important that revenues are increasing. It is also desirable that earnings are growing faster than revenues. Look for operating expense increases below the rate of revenue growth and less contribution to EBITDA and EBIT from non-operating items. Dramatic increases in gross margins, however, may be a red flag for investors.
Investors should closely investigate unusual costs - particularly special charges, asset impairments, goodwill impairments, restructuring charges and other write-downs. These items are often classified as unusual as they are deemed to be unrelated to the company's ongoing business. Investors should consider if these items affect future earnings potential. Extraordinary items could be a discontinued operation, a restatement due to a change in accounting policy or some other factor that does not reflect the company's ongoing operations.
Income Statement Definitions
Sales - Total revenue from operations, less sales and excise taxes during an indicated fiscal period. Main source of revenue, as shown by the company, excludes revenues from discontinued operations. For real estate companies it is total revenue from real estate operations including rental and sales income.
Insurance premiums - Total insurance premiums from life & annuity, health & accident, and property & casualty insurance operations, also includes underwriting revenue.
Interest Income - This includes all interest income, dividend income, income from securities and amortization of mortgages receivable.
Cost of Sales - Is the main operating/production costs of a company, which is the total cost of buying raw materials and paying for all the factors that go into producing finished goods or services. For real estate companies this is the total cost associated with earning the real estate revenue.
Policy Benefits - Includes all benefits, current claims relating to insurance operations, dividends to policyholders and any other expense relating to insurance operations. Increases or decreases in actuarial reserves, amounts required to meet future policy obligations, increase in present value of liabilities under insurance contracts and provision for future policy benefits and claims are also included.
Gross Margin - Sales minus the cost of goods sold. This shows how much a company earns taking into consideration the costs that it incurs for producing its products and/or services.
Research and development - Research and development expense net of R & D grant revenue and recoveries.
Selling, general and administrative - Includes selling, general and administration costs, construction costs, salaries and benefits, and for resource companies includes exploration expense, royalties and write-down or write-off of resource assets if not an unusual item, also includes royalties and operating taxes.
Operating income or loss - This is simply the result of operating revenues minus all operating expenses and shows the amount of income a company gets from its operations.
Interest expense - Total interest expanse from long and short term debt, includes interest on capital lease obligations and is net of capitalized interest where applicable. For financial companies this also includes all deposit interest expenses.
Depreciation and amortization - This represents systematic charges against earnings to write off the cost of an asset over its estimated useful life because of wear and tear through use, action of the elements or obsolescence. Includes depreciation, depletion and amortization relating to items classified as fixed assets or properties on the company's balance sheet, does not include amortization of debt discount or amortization of goodwill.
Provision for credit losses - This item includes any credit provision taken by the company for loss on investments or loans.
Foreign exchange - This is all gains and losses on foreign exchange transactions.
Unusual Expenses - Includes all items not covered by a specific account, includes amortization of goodwill. Used for items of a non-operating nature or for items not material enough to warrant separate treatment. For non-resource companies, includes write-down and write-off of assets.
Gain or loss on sale of assets - This is total gain or loss on sale of investments and gain or loss on sale of assets, also includes gain on sale of subsidiary.
Minority interest - This represents a significant but non-controlling ownership of less than 50% of a company's voting shares by either an investor or another company, includes preferred share dividends of subsidiaries.
Equity in affiliates - Includes equity income or loss from unconsolidated subsidiaries, joint ventures, partnerships and other investments accounted for under the equity method.
Other or Other Revenue - This item includes any other revenue or expenses, including investment income and non interest revenue for banks.
Provision for income taxes - Total income taxes of a company both current and deferred, may include other taxes if they cannot be separated from income taxes.
Discontinued operations - Income, revenue, expenses, losses and loss on sale of assets from discontinued operations are included here.
Extraordinary items - Includes only items which are presented as extraordinary by the company.
Earnings - Net income as reported by the company.
Beginning retained earnings - Total retained earnings of the company at the start of the period.
Common dividends - Total dollar value of dividends distributed out of a company's profits or retained earnings to its common shareholders. Unlike interest on debt, dividends must be voted on by the company's directors before each payment.
Preferred dividends - Total dollar value of payments to holder's of preferred stock, usually at a fixed rate. Preferred shares usually rank senior to common shareholders in payment of dividends and in the event of liquidation of the company.
Other - All other adjustments to retained earnings including any pre period adjustments for changes in accounting estimates or policies.
Retained earnings - This is the end of period retained earnings after dividends and other adjustments. Retained earnings are the accumulated net income retained for reinvestment in a business, rather than being paid out in dividends to stockholders.
Average number of shares basic - Weighted average shares outstanding for the indicated fiscal period.
EPS basic - This is the Earnings per share (EPS), calculated as earnings before extraordinary items, less preferred-share dividends, divided by average common shares outstanding during indicated fiscal year.
EPS diluted - Diluted earnings per share, which is calculated as earnings before extraordinary items, less preferred share dividends, less interest on convertible bonds, divided by average common shares outstanding assuming the exercise of securities such as warrants, options and some convertible debt that require the issuance of shares. This is a measure of potential dilution of earnings of the company.
Dividends per share - This is the dividends per common share paid during the period reported.