Free Income Statement, 6 Components and Importance.

Free Income Statement Definition, Components, Importance and Analyze for Stock and Equity Market.

If you want to grow your wealth and are searching for the best investment portfolio, then the stock market is one of the best alternatives to grow your wealth, but you have to invest in a growth-oriented and profitable company.

So, how do you decide which company is profitable or not? The solution is to find the company’s free income statement, which tells you how much income it earned, how much expenses it incurred, and finally, how much net Profit (loss) it made in the last financial year.

In this post, you will learn more about the income statement that is part of the Financial Statement, its components, and its importance. We will also explore how you can use it in the analysis of the Stock Market.

What is an Free Income Statement Definition ?

The Profit and Loss Statement (P&L), or Income Statement, is a Free Income Statement and financial statement that shows a company’s profit or loss over a specific period. Basically, It is created at the end of the financial year.

It summarizes the total revenue earned and expenses incurred by the company in a financial year and finally calculates its net income or loss in the bottom line.

Mathematically, it is represented as: Net Income (Loss) = Revenue – Expenses.

An Free income statement indicates you about the company’s financial position and health by detailing its revenues, expenses, and resulting profit or loss. It provides essential insights into how well the company performs and manages its finances.

Components of Income Statement

A Free income statement consists of multiple essential components that assist you in determining a company’s overall profitability or financial position. Here are some of the parts of the income statement that you must be aware of:

Sales

Sales are the topmost component of the free income statement. It indicates the company’s total revenues by selling its products or services to the customers or clients depending on the business type. If the any business or company has other sources of income, it may also include it as other income.

Expenses

A company incurs many costs in manufacturing, trading and distributing the product. All these costs are considered expenses of company. They include the cost of goods sold, labor charges, overhead expenses, selling and distribution expenses, marketing expenses, etc.

Operating Profit

It can be explained as the net income generated by the company’s core operations, calculated using the below formula: Operating Profit = Operating Revenue – Operating Expenses.

Operating revenue means the net profit generated by the company from its primary business, in comparison to operating expenses are the costs incurred in the core operations, such as cost of goods sold, rent, salaries, depreciation, and other operating expenses.

Operating Profit Margin %

You can search the Operating Profit Margin % just below the operating profit in the income statement. It shows proportion of revenue that translates into operating profit.

operating Profit Margin = Operating Profit / Total Revenue

It is calculated by dividing operating profit by revenue and multiplying it by 100. For example, if revenue is Rs 50,00,000 and operating profit is Rs 7,00,000, the operating profit margin % will be 14%.

Other Income

Additionally to earning revenue by selling main products or services, the company may also have other sources of income, such as interest income, rental income, dividend income, gain on sale of fixed assets, and so on. All these incomes are added together and reported as other income on income satement.

EBITDA

EBITDA is concern by its abbreviation that is earning Earnings Before Interest, Taxes, Depreciation, and Amortization. It is operating income before deducting interest, tax, depreciation, and amortization.

It is used to calculte the company’s overall operating efficiency. so, it only considers the operating expenses necessary for manufacturing and distributing products. It does not consider non-operating expenses.

Depreciation:

A non-cash expense that allows business to assign the cost of fixed assets over the useful life of assets. It means the decrease in the value of assets due to wear and tear, obsolescence, or usage.

Businesses tend to invest in many fixed assets, such as buildings, plants, machinery, and so on, for operation and manufacturing purposes. All these purchases have high value and have been used for many years mostly more then 30 years. So, businesses can claim depreciation expenses yearly instead of charging entire expenses together in the Free income statement.