INCOME STATEMENT

FOR BEGINNERS
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 1 What is the Income Statement?

AGENDA 2 Revenue, COGS, Expenses, Profits

3 Easy Excel Examples

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 What is the Income Statement?

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The Income Statement is one of the three core financial statements

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 4
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 5
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 6
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

REVENUE
Money generated
from the sales of
goods and
services

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 7
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

REVENUE COGS
Money generated
from the sales of
goods and
services
- Direct cost of
producing goods
or services

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 8
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

REVENUE COGS EXPENSES

Money generated
from the sales of
goods and
services
- Direct cost of
producing goods
or services
- Operational costs
that help maintain
the business

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 9
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

REVENUE COGS EXPENSES PROFIT

Money generated
from the sales of
goods and
services
- Direct cost of
producing goods
or services
- Operational costs
that help maintain
the business
= Money remaining
after all costs and
expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 10
Income Statement Definition
Financial statement that reports a company’s revenue, costs,
expenses, and profits (or losses) over a period of time

REVENUE COGS EXPENSES PROFIT

Money generated
from the sales of
goods and
services
- Direct cost of
producing goods
or services
- Operational costs
that help maintain
the business
= Money remaining
after all costs and
expenses are paid

The Income Statement describes how much a company earns, spends, and profits

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 11
 Revenue, COGS, Expenses, Profits

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Revenue is generally thought of as Price x Quantity

Revenue

R P Q =
Price per unit
x
Quantity

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 13
But…Revenue classifications can get a lot more complicated

Operating Revenues Non-Operating Revenues

Core business activities Non-core business activities

Money generated from the sale of goods and services + other

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 14
But…Revenue classifications can get a lot more complicated

Operating Revenues Non-Operating Revenues

Core business activities Non-core business activities

Product/Service
Geography
Subsidiary
Sales Channel

Money generated from the sale of goods and services + other

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 15
But…Revenue classifications can get a lot more complicated

Operating Revenues Non-Operating Revenues

Core business activities Non-core business activities

Product/Service Interest Income

Geography Rent Income
Subsidiary Partnerships
Sales Channel Other Income (Gains)

Money generated from the sale of goods and services + other

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 16
But…Revenue classifications can get a lot more complicated

Operating Revenues Non-Operating Revenues

Core business activities Non-core business activities

Product/Service Interest Income

Geography Rent Income
Subsidiary Partnerships
Sales Channel Other Income (Gains)

Money generated from the sale of goods and services + other

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 17
Cost of Goods Sold (COGS) is generally thought of as Cost x Quantity

COGS C Q
= x
Cost per unit Quantity

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 18
But…there are several classifications for COGS

Cost of Goods Sold (COGS)

Direct Expenses

COGS are the direct cost of producing goods and services

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 19
But…there are several classifications for COGS

Cost of Goods Sold (COGS)

Direct Expenses

Raw Materials
Labor
Packaging
Depreciation

COGS are the direct cost of producing goods and services

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 20
Expenses are broken into Operating and Non-Operating Expenses

Operating Expenses (OpEx) Non-Operating Expenses

Primary operational activities Secondary-Activities and Losses

Money spent to maintain the operations of a business

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 21
Expenses are broken into Operating and Non-Operating Expenses

Operating Expenses (OpEx) Non-Operating Expenses

Primary operational activities Secondary-Activities and Losses

Selling, General, & Administrative (SG&A)

Research & Development (R&D)
Marketing
Other Operating Expenses

Money spent to maintain the operations of a business

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 22
Expenses are broken into Operating and Non-Operating Expenses

Operating Expenses (OpEx) Non-Operating Expenses

Primary operational activities Secondary-Activities and Losses

Selling, General, & Administrative (SG&A) Interest Payments

Research & Development (R&D) Losses on Assets
Marketing One-Time Costs
Other Operating Expenses Lawsuits

Money spent to maintain the operations of a business

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 23
Expenses are broken into Operating and Non-Operating Expenses

Operating Expenses (OpEx) Non-Operating Expenses

Primary operational activities Secondary-Activities and Losses

Selling, General, & Administrative (SG&A) Interest Payments

Research & Development (R&D) Losses on Assets
Marketing One-Time Costs
Other Operating Expenses Lawsuits

Money spent to maintain the operations of a business

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 24
Profits are broken down into Gross, Operating, and Net Profit

Money remaining after costs and expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 25
Profits are broken down into Gross, Operating, and Net Profit

Gross Profit
Revenues – Cost of Goods Sold (COGS)

Money remaining after costs and expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 26
Profits are broken down into Gross, Operating, and Net Profit

Gross Profit
Revenues – Cost of Goods Sold (COGS)

Operating Income (or Operating Profit or EBIT)

Gross Profit – Operating Expenses

Money remaining after costs and expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 27
Profits are broken down into Gross, Operating, and Net Profit

Gross Profit
Revenues – Cost of Goods Sold (COGS)

Operating Income (or Operating Profit or EBIT)

Gross Profit – Operating Expenses

Net Income (or Profits)

Operating Income – Interest – Taxes

Money remaining after costs and expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 28
Profits are broken down into Gross, Operating, and Net Profit

Gross Profit
Revenues – Cost of Goods Sold (COGS)

Operating Income (or Operating Profit or EBIT)

Gross Profit – Operating Expenses

Net Income (or Profits)

Operating Income – Interest – Taxes

Money remaining after costs and expenses are paid

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 29
Profits are commonly expressed in margins (percentage of revenues)

Gross Margin
Gross Profit / Revenue

EBIT Margin
Operating Income / Revenue

Profit Margin
Net Income / Revenue

Margins help provide insight on the operational efficiencies of a company

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 30
Top-Line (Revenue) to Bottom-Line (Profit)

Top Line Revenue

COGS

Gross Profit

Operating Expenses

Operating Income

Interest & Taxes

Net Income Bottom Line

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 31
Top-Line (Revenue) to Bottom-Line (Profit)

COGS

Revenue Operating
Expenses
Gross Profit
Interest & Taxes
Operating
Income Net Income

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 32
 Easy Excel Examples

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Concluding Thoughts

1 Financial statement that reports a company’s revenues, costs, expenses, and

profits over a period of time

2 Revenue – COGS = GP – Operating Expenses = EBIT – Interest & Taxes = Profit

3 Understanding the income statement takes time! The best way to learn is to study
each line item and seeing the roles they play on the income statement

What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 34
Reminders

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What is the Income Statement? Revenue, COGS, Expenses, Profits Easy Excel Examples 35