Financial Statements: Statement of Income
By Brian Newton, CPA
During the last few months, Brian Newton has discussed the basics of financial statements and how to interpret the information. Today, he focuses on the statement of income and what valuable analytics come from it.
Brian Newton, CPA | Shareholder
See vlog transcription below:
Brian Newton here again from the Business Advisory Services Group here at MHCS. Last time, I discussed the balance sheet and some of the key financial indicators that the users look for. Today I will go through the statement of income –which provides information on the company’s financial performance over a period of time. The statement of income is the primary indicator of whether the Company is making money.
The statement of income starts with the Company’s gross revenues (could be rental income, sales of goods or income from services provided)
From that, cost of goods are subtracted to get to the Company’s gross profit.
Operating expenses, which would include overhead type items such as rent, administrative labor and other indirect items are subtracted from gross profit to get to operating income.
Finally – the operating income is increased or decreased by other income and expense items such as interest and investment income, gains or losses from the sale of property, interest expense or income taxes, if applicable
The net result is the Company’s net income or loss.
Some of the most valuable analytics coming from the statement of income arise from comparing current results with prior periods.
- • Are revenues increasing or decreasing?
- • Is the gross profit percentage holding relative to increases or decreases in revenue?
- • Are fluctuations in operating expenses reasonable to changes in revenues?
- • If an operating budget has been created – how do the operations compare to the amounts included in the budget?
As you do these comparisions, often you can identify problem areas that may require attention or service lines that are more profitable than others, which can lead to making timely business decisions.
The Business Advisory Group at MHCS can assist you in analyzing your statement of income to identify issues that a third party user might be concerned with or developing a budget to help keep your Company’s operations on track.
Check out our Youtube channel for additional insight from our Tax, Assurance and CAS groups here at MHCS. If you have any questions, please feel free to contact us. We look forward to the opportunity to help!