An income statement is a report showing how much a company earned over a given period of time (usually over a quarter or a year). An income statement also shows the costs and expenses associated with earning that revenue. The bottom line of the statement shows the company’s net earnings or losses at the end of that the period represented. For listed companies, income statements also show earnings per share. This lets investors know how much would be distributed to shareholders if the company decided to distribute all the net earnings for the period, although companies usually decide to reinvest a good portion of their earnings in the business.
To gain a full view of a company’s activities, investors should also read the balance sheet which shows assets and liabilities and a cash flow statement which provides more information about the cash assets listed on a balance sheet.
income statement in the news
In February 2014 a FT Lex note considered various measures for looking at debt ratios at Petrobras. It looked first at Petrobras’ income statement and found no worries there: operating profits covered interest payments eight times over in the nine months that ended in September. Then it compared profits to the stock of debt on the balance sheet and found net debt was three times Petrobras’ ebitda against a global average of 1.5 times, but nothing to be alarmed about. The real red flag was also revealed in the balance sheet rather than the income statement: during the first nine months of 2013, Petrobras’ net debt rose from $72bn to $86bn as investment overshot earnings.