Financial Glossary
Income statement
An income statement (also called a profit and loss statement or P&L) is a financial report that summarizes a company's revenues, cost of goods sold, gross profit, operating expenses, operating income, interest expense, and net income over a defined period -- typically a month, quarter, or fiscal year. It answers the question: was the business profitable during this period? Prepared under the accrual basis, it records revenue when earned and expenses when incurred, regardless of cash timing. Multi-step income statements distinguish gross profit from operating income from net income, providing layered insight into where margin is created or eroded.
Problem & Application
A campground's annual income statement (simplified): Revenue $900,000; Cost of revenue (site maintenance, utilities directly tied to occupied sites) $180,000; Gross profit $720,000 (80% gross margin). Operating expenses (salaries $220,000, marketing $45,000, insurance $30,000, SaaS/software $15,000, G&A $40,000) total $350,000. Operating income (EBIT) $370,000 (41% operating margin). Interest expense $90,000. Pre-tax income $280,000. Income tax (if C-corp) $58,800 (at a hypothetical 21% federal rate). Net income $221,200. Reading across multiple periods, a manager would flag: gross margin compression (rising utility costs relative to revenue), marketing spend as a percentage of revenue, and whether EBIT growth is outpacing revenue growth. Non-recurring items -- insurance settlements, equipment write-offs, PPP loan forgiveness -- should be broken out as below-the-line items so the core operating business performance is legible without distortion.
In Short
The income statement is essential for understanding a company’s profitability and operational efficiency. It should be reviewed regularly to inform business strategies.