Analysing annual reports (part 2)

THE INCOME statement, also known as the Statement of Comprehensive Income or the profit and loss account (P&L), is one of the most important financial reports used by businesses, investors, and analysts.

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It provides a snapshot of a company's financial performance over a specific period—monthly, quarterly, or annually—and shows whether the business is generating a profit or incurring a loss.

By breaking down revenues, expenses, and net income, the income statement helps stakeholders assess profitability, efficiency, and overall financial health.

Purpose of the income statement

The primary purpose of the income statement is to measure a company's profitability, by answering the fundamental question: did the business make money during the reporting period?

Investors use it to evaluate whether the company is a worthwhile investment; lenders analyse it to assess repayment ability; and managers review it to make operational and strategic decisions.

Unlike the balance sheet, which is a snapshot at a single point in time, the income statement covers a duration—showing how performance evolved over that span.

Structure of the income statement

While formatting can differ across industries or jurisdictions, most income statements follow a similar structure:

* Revenue (also shown as turnover or sales): The top line of the statement records the total amount of money generated from selling goods or services. This figure represents the business's ability to generate demand.