Commonly referred to as a "profit and loss" statement, or P&L, the income statement reports a company's revenues and expenses charged over a period of time. The purpose is to determine if a company made or lost money during the time frame that is being measured and provide information on margin analysis.
An income statement has a standard format: revenues first, then expenses.
Common calculations used to evaluate an income statement are:
Gross Profit Margin
The gross profit margin indicates how efficiently your company is using your labor, raw materials and production fixed assets. A higher gross profit margin corresponds to a more efficient company. Calculated as follows:
Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue
Operating Profit Margin
Operating profit subtracts a company's selling, general and administrative expenses from gross profit. The goal of a company is to be able to reduce its operating costs as a percentage of sales, which indicates that the company is running more efficiently.
Operating Profit Margin = (Revenue – Cost of Goods Sold – SG&A Expense) / Revenue