Income statement

As explained in Investing for Programmers

An income statement is a financial statement that reports a company’s revenues, expenses, and resulting profit or loss over a period.

An income statement reports a company’s performance over a quarter or year by showing revenue, expenses, and net income. Net income equals revenue minus expenses and indicates profit or loss. section 2.1.1

Use it to study how a business earns and spends money over time. Investors often compare the same quarter across different years because seasonal conditions can distort results, especially for retailers. section 2.1.1

Read the statement through three primary components:

• Revenue records total income from sales or services. section 2.1.1
• Expenses record the costs incurred to generate revenue, such as employee salaries or research and development. section 2.1.1
• Net income shows the resulting profit or loss and helps investors assess whether revenue and earnings are growing. section 2.1.1

Consulting-firm analysis

A simplified consulting firm earns revenue from services, pays billable employees, and invests in training and certification through R&D. A sharp increase in R&D expenses can prompt hypotheses about changing operations or financing, but the statement alone does not establish the cause. section 2.1.1

Figure 2.2 A simplified model of a consulting company that makes its money on selling services and spends most of it on employee salaries

Use the consulting-company model to connect service revenue, employee salaries, and spending decisions in a single visual structure. section 2.1.1

How Investing for Programmers covers it

How deep it goes

Defines the three main components and demonstrates trend analysis, while keeping detailed accounting treatment to a minimum.

Examples

Uses quarterly comparisons, seasonal retail sales, and a consulting-firm model involving salaries, R&D, and foreign capital.

What it assumes

Assumes basic financial vocabulary while introducing revenue, expenses, net income, and the roles of related statements.

What you can do after

Evaluate company performance by comparing revenue, expenses, and net income across periods and industries.

How it connects

Connects revenue, expenses, net income, balance sheets, cash flow statements, time value of money, and financial ratios.

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Related concepts

• costhas part · Cost is the monetary expenditure, computational or other resource consumption, effort, or burden incurred in acquiring, producing, operating, or performing something.
• revenuehas part · Revenue is the income an organization earns from its ordinary business activities before expenses are deducted.
• net incomehas part · Net income is the profit remaining after applicable expenses, interest, taxes, and other costs are subtracted from revenue.
• financial statementkind of · A financial statement is a formal report presenting an organization’s financial position, performance, or cash movements.
• financial dataproduces · Financial data is information about financial entities, accounts, transactions, markets, monetary amounts, or economic activity.

This explainer was generated by Manning's knowledge graph from the text of Investing for Programmers. The section links point to the parts of the book it draws on.