5.2.1.1. What information can be found in the income statement? 

Revenue: By analyzing the revenue trends of products or services, enables the identification of those that are performing well. 

Cost of goods sold (COGS): The costs incurred in the production of goods or services sold, including the acquisition costs of goods for resale.  

Gross profit: Defined as the difference between revenues and the cost of goods sold. Gross profit must be adequate to cover operating expenses, taxes, and financing costs. It serves as a crucial metric for monitoring the financial progression of a company over time. 

Operating expenses: Also referred to as selling, general, and administrative expenses (SG&A), these are the expenditures associated with the day-to-day operations of a business. These expenses do not directly vary with production or purchase volumes and are generally categorized as fixed or semi-variable.  

Income before taxes (or Earnings before tax (EBT): As companies are subject to varying tax rates, income before taxes offers a more accurate measure of profitability compared to net income.  

Net income: This represents the residual profit after deducting all expenses and income taxes from the total revenue generated within a specific period. 

It is important to understand that the income statement is different from the balance sheet. The income statement is said to be a dynamic report, representing a period of time. On the other hand, the balance sheet is static, because it only represents a given point in time.