How Can An Income Statement Help A Business

Normal practice is to include three accounting periods on an income statement.

How can an income statement help a business. Effective decision making process entails drawing financial information from income statement. The current period plus two prior periods. As a business owner financial statements are used to provide shareholders partners or potential investors with key business metrics. Calculating these percentages is easy you simply divide each line item by net sales.

This data can be analyzed to determine whether the company is profitable or whether they are headed for a loss. In this way both portions revenues and expenses provide useful information to managers. Understanding an income statement. The purpose of an income statement is to show how the company has performed by listing sales and expenses and the resulting profit or loss.

In other words it tells you where the money is coming from and where it s going. It shows the profit or loss made by the business which is the difference between the firm s total income and its total costs. Income statements can also track dramatic increases in product returns or cost of goods sold as a percentage of sales and can be used to determine income tax liability. It s also a powerful diagnostic tool business owners can use to evaluate their firm s strengths and weaknesses which can help you chart the way forward based on doing more of what works for the greatest impact on your bottom line.

Income statement is of great value and relevance to a business. A glance at the income statement can tell anyone whether the business is profitable. Contact us to discuss how you can use your income statement to improve business operations. Determine if line items have fallen due to company specific or industrywide trends by comparing them to public companies in the same industry.

Also monitor trade publications trade associations and the internet for information. It is by means of the financial information drawn from income statement that it can be. The income statement is a historical record of the trading of a business over a specific period normally one year. An income statement is an important financial document that reveals the health of a business.

Allows shareholders owners to see how the business. An income statement or a profit and loss statement helps to understand a company s sources of revenue and various items of expenses. Income statements summarize the financial activities of a business during a particular accounting period which can be a month quarter year or some other period of time that makes sense for a business s needs. The income statement also known as profit and loss statement p l reflects the company s revenue and expenses during a particular period of time.

It clearly defines the business s revenues and expenses over a specified period of time. The following income statement shows a company s percentage breakdown for one month.