Income Statement

The Income Statement provides a summary of a company's operations and profitability over a given period of time. The income statement or statement of financial performance lists the firm’s revenues and expenses over a period of time. It shows the value of the products and services sold by the company for the reporting period, the costs incurred in achieving those sales, and the distribution of the residual income. The Income Statement provides an analyst with clues about the profitability of a company's operations. A typical Income Statement is shown below

Description of accounts

Whereas the balance sheet shows the firm’s assets and liabilities at a given point in time,

the income statement shows the flow of revenues and expenses generated by those assets
and liabilities between two dates.

Gross Profit. The first two lines of the income statement list the revenues from sales of products and the costs incurred to make and sell the products. Cost of sales shows costs directly related to producing the goods or services being sold, such as manufacturing costs. 

Operating Expenses.  These are expenses from the ordinary course of running the business that are not directly related to producing the goods or services being sold. They include administrative expenses and overhead, salaries, marketing costs, and research and development expenses. The third type of operating expense, depreciation and amortization, is not an actual cash expense but represents an estimate of the costs that arise from wear and tear or obsolescence of the firm’s assets.

Net income. represents the total earnings of the firm’s equity holders. It is often reported on a per-share basis as the firm’s earnings per share (EPS), which we compute by dividing net income by the total number of shares outstanding.