Income Statement - Revenue

From the example of income statement below, we will focus on the “revenue”, where the money come into the company. Revenue is the income generated by selling its products or services.

However, it is insufficient to tell us that this company is earning or losing money. Then we will look into the expenses, where the money go out from the company on material purchasing, employee salaries, depreciation, etc. to maintain the company operations.

By deducting the expenses from the revenue, we will obtain the “Profit”, where showing the company is earning or losing money. This is important when choosing correct company before investment to be done. 

Sample of Income Statement from listed company

INCOME STATEMENT

In searching of good company, we will look through on the “Income Statement”, which reveal the company’s operation results for a set of period of time. It can be reported for each three month period and at the end of year which call “annual report”. Annual report normally will be audited by external party before published to the public.

In the income statement, there will be three items we can look for, which is “Revenue”, “Expenses”, and “Profit”. The profit obtained after we subtract the expenses from the revenue. Quite simple. A company with good profit that increase every year and consistently showing that this company is durable. We won’t buy any shares from company that its profit is not stable and sometimes will lose money. Would you buy this kind of company? Definitely no. Besides, increasing of profit in consistently will bring the market share price increasing also. This would mean that your capital will be increase together with dividend issue by the company! Sometimes the company can issue “special dividend”, sound good!

We need to bear in mind that when we look through the income statement, we need to get their annual report in a series of years to see the profit trend. This can let us know how good the company perform in these years. Normally 4 to 5 years will be nice. You can plot your graph and analyze the trend of profit if you tend to.

Financial Statements Reveal Durable Company

Financial statement can reveal whether the company that we interested in will generate money to us consistently. When we looking in the financial statement, we looking on the “consistency”. Will this company able to generate income with high gross margin consistently? Will this company able to maintain the expenses consistently. Will this company able to generate the earnings consistently?

This consistency is important to us for long term investment.

When we look into the financial statement, there always have 3 statement which named as income statement, balance sheet and cash flow statement. Each statements provide us important information on the company that we interested in.

Income statement reveal how much the company has earned during its operation. This statement will be released every 3 months period by accountants and the whole fiscal year. Info can be get from this statement are company’s margin, return of equity, its consistency earnings, etc.

Balance sheet reveal how much the company has the money in the bank and how much it’s owes. The net worth of the company can be known after deduct all the debts from their account. The balance sheet was generated every 3 month period which called as quarter and at the end of the accounting or fiscal year.

Lastly, the cash flow statement track the flow of the cash either in or out of the business. We can know how the company spend their capital in their improvements.