The Income Statement

We talked about the Cash Flow Statement in a previous article, check that out here if you want. Let’s talk about the PnL Statement today, because it is important to understand if the company is spending money correctly. Here’s a glimpse at the Income Statement for Hindustan Aeronautics Ltd, and we’ll use numbers from here throughout this article for continuity and ease.

The PnL or Income Statement includes the Revenues, Expenditures, Taxes and Net Profit for the company. Revenue, also known as the top line of the company, refers to all the money that is coming into the company, from its primary/operating activities as well as a lot of other activities. See the notes below to see the example.

The Expenses section shows all of the money that the company needs to spend to keep it going. This includes raw material costs, server costs, employee costs, etc. See the picture below for the expenses in the same example.

The next deduction from the revenue would be the taxes. The Profit Before Tax (PBT) refers to the net operating income after taking out operating expenses but before deducting taxes and interest from the total number. The Profit After Tax would be PBT minus the taxes.

The last section in the Income Statement is generally the Earnings Per Share (EPS) figures. This basically calculates the net profit generated divided by the total number of shares to calculate the earnings/profit per share. This helps to check the real growth of the company, for if the number of shares increases too much and the profit stays the same, every shareholder would be poorer.

Keep in mind, almost all of the items in the P&L statement will have an associated note. Also, now that we understand the Income Statement, we need to be able to analyse them too, so that we can compare companies with their competitors. We can do this using financial ratios, something we’ll talk about in a later article.

But that’s it for this article. Hope you learnt something. You can read all my other articles here. And do let me know if you want a specific topic covered! Subscribe for free to receive new posts and support my work.