Income Statement Analysis Guide
The profit and loss account shows the sales made during a certain period (usually 1 year) minus the expenses incurred by the company during the same period. The result of this subtraction shows the benefits or losses obtained at the end of the year.
Over a year, the income statement brings together all profits and losses. If revenues exceed expenses, the business is profitable. The profit and loss account is broken down into three categories of transactions: those related to the company’s ordinary activity, called operating income; those related to the impact of financial management, called financial results; and those related to exceptional transactions, called extraordinary results.
Net turnover: Sales, or turnover, represent the total amount of money that a company generates by selling its products or services. Revenue is generally the first line of an income statement and provides an overview of the demand for a company’s products or services.
Supplies and Expenses: This indicator represents the direct cost of producing the goods or services sold by a company. It includes things like materials and supplies, and any other costs directly attributable to the creation of the product or service.
Personnel Expenses: this line in a company’s income statement represents all the costs related to the employment of talent in the company. These expenses are essential to the operation of the company and are classified as operating expenses.
Staff expenses are an important indicator of a company’s operational efficiency. They must be taken into account in the budget, planned and monitored to ensure the smooth functioning of the company.
Operating expenses: Operating expenses are all those that a company must incur to carry out its activity or activities. This is not the only way to name them, as they are also known as operating costs. They are a fundamental element for their economic viability, involving a large amount of money in many cases.
Operating Profit: This result indicates whether a company gains or loses at the end of a financial year in relation to its main activity. To calculate the operating result, you must first calculate the volume of turnover, then subtract the costs of the goods or services produced and the remaining operating expenses.
Financial expenses: Financial expenses are included in the deductible expenses of economic activity, both for the self-employed and for companies. All expenses incurred by a company as a result of the use of capital made available to it by third parties are considered financial expenses.
RNAI — Net Profit Before Taxes: The profit before taxes (BAI) is the result a company obtains after subtracting all expenses, except Corporation Tax, from income. It is a measure of the economic performance of an organization, without taking into account financial expenses and interest.
Taxes : Taxes are what a company must pay to the government based on its profit before taxes. The level of taxes may vary depending on the jurisdiction and the structure of the company.
Net Profit or Result for the Year: The profit after tax is known as net profit. The benefit is the difference between income and expenses, once taxes are deducted on that benefit, the net benefit remains.
These indicators provide a detailed view of how a company’s money is working. However, it’s important to note that a single figure in the income statement can rarely give a complete picture of a company’s financial status. Instead, it’s best to examine these numbers together to understand the company’s overall economic situation.
The figures in the income statement should be compared with other companies in the same industry. If a company’s gross margins are significantly lower than those of its competitors, it could indicate that the company has problems with production efficiency.
In conclusion, the income statement is usually the first financial statement of an accounting firm. It provides a clear picture of the results of the company’s main activity and forms the basis for much of the rest of the calculations made about a business.
