Income statement, also known as
statement of earnings is an integral part of financial statements issued by
companies. Traditionally, performance is measured by the firms’ success in
generating lucrative margins or income, well known as the “bottom-line” by the
investors and business community. Thereby, until recent times the income
statement was given prominence over any other financial statements. Stock price
movements were driven largely by growth in the bottom line released by
companies. See exhibit 2 for a sample income statement.
Statement for the Fiscal Year December 31, 2003
Cost of Sales
Selling and Admin. Expenses
Repairs and Maintenance
Total Operating Expenses
Other income and expense:
Interest and Dividend Income
Pretax Income from
Income from Discontinued
Income before tax & zakat
is the total revenue generated by the business less any allowances, discounts
and returns. This is a key number in the financial statements and is a base for
many calculations and analysis. Since sales are an indicator of success in
business, the trend of this figure is an indicator of performance. This figure
also shows marketing capability of selling the product.
Cost of Goods Sold
or cost of sales is one of the largest expenses deducted from the revenue. The
manufacturing cost of the goods that were sold is designated as cost of sales.
As this figure is significant it attracts the attention of management and analysts.
It has to be noted that the magnitude of the cost of sales figure may vary from
Gross Profit is
arrived by subtracting cost of sales and direct costs from net sales revenue for
the period reported. This figure is the first profitability measure relating to
operations. Gross profit as a percentage of sales is a well accepted primary
profit margin. Gross profit is also an industry specific barometer which is
influenced by the product and nature of the industry.
Expenses are the
expenses incurred in the course of operation during the reporting period
accounted on an accrual basis. This constitutes selling and distribution,
administrative expenses, and depreciation and amortization. Details are given
depending on the format of presentation.
Income from Main
Operations is a key indicator of overall operational performance of a
business. This figure is arrived at after deducting operating expenses from
gross profit. Since this figure excludes non-operational items and taxation, it
has unique importance. The operational earnings power is revealed by this
Other Revenues and
Expenses are of non-operational nature and all items are not recurring.
This comprises interest income/expense, dividend revenue, rental revenue and
gain/loss from fixed assets disposals etc.
Income from Continuing
Operations refers to the earnings generated from ongoing business.
Results of discontinued operations are indicated below earnings before taxation.Details of loss or profit of disposal are disclosed along with results of
Income/(Loss) before Extraordinary Items
are shown separately below other revenues and expenses. These items are
significantly different from usual business activities and expected not to recur
Taxation/Zakat is the profit recognized before deducting income
tax expense for the taxable profit earned.
Net income/(Loss) for the
yearis the overall profit figure of a company after considering all
revenues and expenses that have been incurred during the reporting period.