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Income Statement Line Items to Know for Financial Statement Analysis

Understanding income statement line items is crucial for financial statement analysis. These components, like revenue and net income, reveal a company's profitability and operational efficiency, helping investors and stakeholders make informed decisions about its financial health.

  1. Revenue

    • Represents the total income generated from sales of goods or services before any expenses are deducted.
    • Often referred to as the "top line" of the income statement, indicating the company's ability to sell its products.
    • Can be affected by pricing strategies, sales volume, and market demand.
  2. Cost of Goods Sold (COGS)

    • Represents the direct costs attributable to the production of the goods sold by a company.
    • Includes costs such as materials, labor, and manufacturing overhead.
    • A key factor in determining gross profit and overall profitability.
  3. Gross Profit

    • Calculated as Revenue minus COGS, indicating the profit made before deducting operating expenses.
    • Reflects the efficiency of production and pricing strategies.
    • A critical measure for assessing a company's core profitability.
  4. Operating Expenses

    • Include all costs required to run the business that are not directly tied to the production of goods or services.
    • Categories include selling, general, and administrative expenses (SG&A).
    • Impact overall profitability and can be managed to improve net income.
  5. Operating Income

    • Calculated as Gross Profit minus Operating Expenses, representing the profit from core business operations.
    • Indicates how well a company is managing its operational costs relative to its revenue.
    • A key indicator of operational efficiency and profitability.
  6. Interest Expense

    • Represents the cost incurred by a company for borrowed funds.
    • Affects net income and is important for assessing financial leverage and risk.
    • Can vary based on interest rates and the amount of debt a company holds.
  7. Income Tax Expense

    • Represents the amount of taxes owed to the government based on taxable income.
    • Affects net income and can vary significantly based on jurisdiction and tax strategies.
    • Important for understanding the effective tax rate and its impact on profitability.
  8. Net Income

    • The final profit figure after all expenses, including COGS, operating expenses, interest, and taxes, have been deducted from revenue.
    • Often referred to as the "bottom line" of the income statement.
    • A key indicator of a company's overall financial performance and profitability.
  9. Earnings Per Share (EPS)

    • Calculated as Net Income divided by the number of outstanding shares, indicating the profitability on a per-share basis.
    • A critical metric for investors, reflecting the company's ability to generate profit for shareholders.
    • Can influence stock price and investor sentiment.
  10. Depreciation and Amortization

    • Depreciation refers to the allocation of the cost of tangible assets over their useful lives, while amortization applies to intangible assets.
    • Both are non-cash expenses that reduce taxable income and impact net income.
    • Important for understanding asset management and the long-term financial health of a company.


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© 2025 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.