Basic Income Statement Analysis

The number one thing to know when preparing an income statement is that it is drawn up from the figures in the trial balance.

Basic income statement analysis. This analysis is used to understand the cost structure of a business and its ability to earn a profit. This income statement analysis lesson retains a sample income statement oldie but goodie from microsoft and it works because it covers all the bases and poses an understandable example. 2001 2000 and 1999. A simple way to track expenses and income using one line terms with a single total at the bottom.

The first one is gross profit which is the profit the company made on sales after cost of goods. This video series introducing you to financial statement analysis is based on the dozens of training seminars i have given to credit industry groups organized by dun bradstreet the national association of credit management and riemer reporting. Vertical analysis and horizontal analysis. The difference between the two is in the way a statement is read and the comparisons you can make from each type of analysis.

The income statement below is from microsoft s 2001 annual report and it shows the full fiscal year income statement figures for three years. The income statement also known as the profit and loss p l statement is the financial statement that depicts the revenues expenses and net income generated by an organization over a specific. Let s return to the example we ve been using throughout our lessons george s catering. Income statement analysis there are two methods commonly used to read and analyze an organization s financial documents.

Since the income statement is a measure of profitability the first thing we want to do is analyze some of the profitability measures. According to black s law dictionary the definition of a basic income statement is. The analysis of the income statement involves comparing the different line items within a statement as well as following trend lines of individual line items over multiple periods.