The income statement breakdown
Feb 22 in Business Finance
The income statement breakdown
Business finances can be scary
Let me break down the most important report (The Income Statement) so a second-grader could understand it:
The Income Statement tells you whether or not you’ve made a profit over X period of time. It also shows why or why not.
The formula: Revenue - Expenses = Profit
Expenses are then broken down into 2 broad categories:
- Cost of Goods Sold (COGS): these are costs related directly to the sale
- Operating expenses: These are the overhead costs to run the business, but not directly related to revenue
The income statement will help you tweak high-leverage variables:
- Identify how much revenue/profit you bring in
- Identify the leading causes of your situation
- Understand your products margins and where you can cut costs or raise prices
Boom, simple as that
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