What is an Income Statement?
An income statement (also called a Profit & Loss or P&L) shows your revenue, expenses, and profit over a period of time. It answers: did you make money during this month/quarter/year?
The income statement flows from revenue at the top, subtracts various costs, and arrives at net income (profit or loss) at the bottom.
Key Income Statement Sections
Revenue: Money earned from selling products/services. COGS: Direct costs of delivery. Gross Profit: Revenue minus COGS. Operating Expenses: Sales, marketing, R&D, G&A costs. Operating Income: Gross profit minus operating expenses. Net Income: Final profit after interest and taxes.
Why the Income Statement Matters
The income statement shows profitability and efficiency. Revenue growth without profit improvement suggests scaling problems. Improving margins indicate operational leverage. Investors use income statements to assess business model viability.
Formula
Net Income = Revenue - COGS - Operating Expenses - Interest - Taxes
Gross Profit = Revenue - COGS
Operating Income = Gross Profit - Operating Expenses
Example
Your SaaS company's simplified monthly P&L:
- Revenue: $200,000
- COGS: ($40,000)
- Gross Profit: $160,000
- Operating Expenses: ($140,000)
- Operating Income: $20,000
- Interest & Taxes: ($5,000)
- Net Income: $15,000
You made $15K profit this month after all expenses.