Income Statement Stock investors like to look at the income statement (a.k.a. "earnings statement" or "statement of operations") because it shows the company's "bottom line": its earnings, or profit. Most of the income statement details the company's operations: the yellow zone back in the diagram.   Consolidated Financial Statements Income Statement (click on highlighted text for more information)   (dollar figures are in thousands) 1997 1996 Sales Revenue   Widget Sales $ 12,347 $ 9,746   Services 6,912 5,688 Total Sales Revenue 19,259 15,434 Sales Costs   Widget Sales 5,649 4,688   Services 3,166 2,712 Total Sales Costs 8,815 7,400 Gross Profit 10,444 8,034   Gross Margin 54 % 52 % Operating Expenses   Sales & Marketing 4,078 3,132   General & Administrative 916 705   Research & Development 2,364 1,831 Total Operating Expenses 7,358 5,668 Operating Income 3,086 2,366   Operating Margin 16 % 15 % Interest Payments to Bondholders 147 253 Earnings Before Taxes 2,939 2,113 Provision for Taxes 1,028 739 Earnings ("net income") 1,911 1,374   Profit Margin 10 % 9 % Dividends paid to Shareholders 10 - Earnings available to Shareholders 1,901 1,374

Introduction / Diagram Income Statement Cash Flow Statement Balance Sheet Books & Links

Notes This company is showing positive earnings. In fact, if you compare the earnings between the two years shown, you'll find that earnings "grew" by 39%. As you might expect, the figures for sales costs and operating expenses are also higher, so the company is probably growing physically as well: in order to make more money, it's increasing its capacity to produce more of whatever it sells. One important thing that the income statement doesn't show is how the company is paying for this growth. To find that, you need to look at the cash flow statement. Another shortcoming of the income statement is that expense items are only shown "by department" and not "by type". For example, employee salaries make up part of sales cost and part of all items listed under operating expenses; but you can't tell from here how big a part.

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