If you’re hoping to understand business health and performance, one of the key financial documents you’ll need to get to grips with is an income statement, also referred to as a ‘profit and loss’ or ‘P&L’ statement. This is a financial document that provides you with a top-level view of how your business is making or losing money.
Income statements give you a straightforward breakdown of how much profit a business has made, once various costs have been deducted from its sales revenue. Essentially, sales minus costs equals profit. Keep this simple equation in mind when you’re looking at an income statement, and you’ll soon get to grips with it.

So, let’s see what an income statement might look like...

Take a moment to cast your eyes over this example. It might seem a little overwhelming at first. As you can see, there are quite a few numbers and terms to consider, but if you distil it down, then what you’re essentially looking at is the amount of revenue a business has made from sales, the different costs that eat into this revenue, and the net income that’s left over. This profit can then be used to grow the business further or pay shareholders.
Now, you might have noticed that there are actually three different types of profit being listed in this statement. ‘Gross Profit’, ‘Operating Profit’ – also known as EBITDA – and ‘Net Income’, which is sometimes referred to as ‘Net Profit’.
Gross Profit is the money left over from sales revenue after you’ve factored in the basic cost of providing the goods or services you’ve sold, like manufacturing costs for example. Operating Profit is what you have left over after you’ve subtracted operating costs and overheads like marketing spend, admin costs, staff wages, rent and utilities. Finally, Net Income, also known as Net Profit, is the final amount a business is left with, but only after other financial considerations have been deducted, like taxation.
Keep in mind that this is just one example of what an income statement might look like. Income statements will be laid out in different ways depending on the type of business and the country you operate in. Some are contained to just a few lines to give an overview of the business, while others might span across many lines, giving more detailed information. There’s no right or wrong way to do it, as long as the income statement feels intuitive and readable and gives you all the information you need to make well-informed decisions.
Income statements do, however, always follow the same overall format, with sales at the top, costs in the middle, and net income at the bottom - that’s why you’ve likely heard it referred to as ‘the bottom line!’

Income Statements

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