Explainer · Company Fundamentals
How to read an income statement
An income statement shows whether a company made or lost money over a period, and where the money went on the way. Read it top to bottom and each line answers one question.
Quick answer
An income statement shows a company's revenue for a period, then subtracts costs, operating expenses, interest and taxes to arrive at net income, the bottom line [1]. Read it top to bottom, compare it with the same period a year earlier, and check the notes for one-time items.
Key points
- An income statement covers a period of time, such as a quarter or a fiscal year, not a single day [1] [3].
- Each step down subtracts something: cost of goods sold, operating expenses, interest, then income tax [1].
- Annual statements in a 10-K are audited; quarterly ones arrive in the 10-Q [3].
- Apple kept 26.92 cents of net income from each dollar of fiscal 2025 net sales (calculated from its 10-K figures).
- One-time items, such as a gain from discontinued operations, can make a single year look far better than the business underneath [9].
On this page
What is an income statement?#
An income statement, sometimes called a profit and loss statement, is one of the primary financial statements a company prepares [1]. It reflects the company's financial performance over a specific period of time [1]. Companies may use other names; Apple, for example, titles it "Consolidated Statements of Operations" [2].
US public companies publish income statements in quarterly and annual reports. The 10-Q is filed after each of the first three fiscal quarters, and the annual 10-K includes audited financial statements [3]. FINRA calls the income statements in the 10-Q and 10-K a good starting point for questions about profitability, because they show sales and revenue, expenses and before-tax earnings [4].
The SEC's Regulation S-X lists the line items that, if applicable, should appear on the face of the statement. They include net sales and revenues, the costs applicable to those sales, income tax expense, net income or loss and earnings per share data [5]. That is why most income statements look alike, even across very different businesses.
How do you read an income statement from top to bottom?#
Start at the top line and work down. Every line below revenue either subtracts a cost or shows a subtotal. The SEC's own example uses a small hypothetical company, and the table below copies its figures exactly [1].
Here is the SEC's worked example, line by line, for a hypothetical company over one period.
| Line item | Amount | What it means |
|---|---|---|
| Revenue | $835,000 | Value of products or services sold |
| Cost of goods sold | ($250,000) | Direct cost of making what was sold |
| Gross profit | $585,000 | Revenue minus cost of goods sold |
| Operating expenses | ($210,000) | Overhead of running the business |
| Operating profit | $375,000 | Profit from the business itself |
| Interest expense | ($7,000) | Cost of borrowing |
| Income before income taxes | $368,000 | Profit before tax |
| Income tax expense | ($77,000) | Estimated tax owed |
| Net income | $291,000 | The bottom line |
Figures from the SEC's example income statement [1]. Brackets mean the amount is subtracted.
- Read revenue first
Revenue is the value of the products or services sold [1]. It is the top line, before any costs.
- Find gross profit
Cost of goods sold covers the direct expenses of producing what was sold [1]. Revenue minus that cost is gross profit.
- Subtract operating expenses
Operating expenses, also called selling, general and administrative expenses, are the overhead of running the business [1]. What is left is operating profit, also called operating income.
- Account for interest and tax
Interest expense is the cost of loans, and income tax expense is an estimate of tax owed [1].
What does a real income statement look like?#
Apple's fiscal 2025 statement of operations covers the 12 months ended September 27, 2025, with the two prior years beside it [2]. Its lines run in the same order as the SEC example: net sales, cost of sales, gross margin, research and development, selling, general and administrative, operating income, other income or expense, provision for income taxes, net income, then basic and diluted earnings per share [2]. Apple calls the subtotal after cost of sales "gross margin" [2]; in the SEC example the same position is "gross profit" [1].
The figures below are as reported in Apple's Form 10-K for fiscal 2025. You can see more on the Apple company page.
- Net sales
- $416,161 millionfiscal year ended September 27, 2025 [2]
- Operating income
- $133,050 millionForm 10-K [2]
- Net income
- $112,010 millionForm 10-K [2]
- Diluted EPS
- $7.46Form 10-K [2]
- Operating income per $1 of sales
- 31.97 centscalculated: 133,050 / 416,161
- Net income per $1 of sales
- 26.92 centscalculated: 112,010 / 416,161
How do you compare one year with another?#
One income statement on its own says little. Put it next to the same period a year earlier and look at which lines grew faster. Coca-Cola is a useful case. As reported in its Form 10-K, revenue rose from $47,061 million in 2024 to $47,941 million in 2025, a 1.87% increase (calculated) [6]. Net income attributable to shareowners rose from $10,631 million to $13,107 million, a 23.29% increase (calculated) [6]. When profit grows far faster than revenue, the explanation is somewhere in the lines between, and the 10-K's MD&A section is where management gives its view of the year's results [3]. See the Coca-Cola company page for the filing figures.
Compare like with like. A quarter from a 10-Q is not comparable with a full year from a 10-K, and fiscal years end on different dates. Apple's fiscal year ends on the last Saturday of September [7], while Microsoft's fiscal 2026 ended June 30, 2026 [8].
Why can one year's net income be misleading?#
Net income includes everything, even events that will not happen again. Regulation S-X gives discontinued operations their own caption, separate from income from continuing operations [5]. Johnson & Johnson shows why that matters. Its fiscal 2023 net earnings included $21,827 million of net earnings from discontinued operations, after the Kenvue separation [9].
Take the discontinued operations out of 2023 and $13,326 million remains (calculated: $35,153 million minus $21,827 million), which is the figure the company reports as net earnings from continuing operations [10]. Read only the headline and 2024 looks like a collapse; read the statement closely and 62.09% of 2023 net earnings (calculated) came from operations the company reports as discontinued. The Johnson & Johnson company page lists the filing figures.
What is the difference between GAAP and adjusted figures?#
The income statement in a 10-K follows Generally Accepted Accounting Principles (GAAP). Some companies also publish "adjusted" numbers in earnings releases. Under Regulation G, a non-GAAP measure is one that excludes amounts included in the most directly comparable GAAP measure, or includes amounts that measure leaves out [11]. A company that makes one public must present the comparable GAAP figure alongside it and reconcile the two [11], and it must not publish a non-GAAP measure that is misleading [11].
Start from the GAAP statement, then read the reconciliation to see exactly what was removed. Earnings per share is built on the bottom line, so it inherits every one of these choices. Our guide to earnings per share covers basic, diluted and adjusted EPS, and the P/E ratio explainer shows what happens when that EPS goes into a valuation ratio.
Mistakes beginners make with income statements#
- Treating revenue as profit
Revenue is the top line before any costs [1]. A company can grow sales every year and still lose money.
- Comparing a quarter with a year
A 10-Q covers a quarter and a 10-K covers the fiscal year [3]. Compare the same length of period, ideally the same quarter a year earlier.
- Taking adjusted numbers at face value
Non-GAAP figures leave out, or add, amounts compared with the GAAP figure [11]. Always read the reconciliation to the GAAP number.
Frequently asked questions#
Where do I find a company's income statement?
In its 10-K (annual, audited) and 10-Q (quarterly) filings, which are public on the SEC's EDGAR website [3]. Companies may also post them on their investor relations site.
Is an income statement the same as a profit and loss statement?
What is the bottom line?
Net income or net loss: what is left after all expenses, interest and taxes are subtracted from revenue [1]. Earnings per share is calculated from it.
Does a profitable income statement mean the stock will go up?
No. The income statement describes what already happened. Share prices also reflect expectations, and a profitable company's stock can still fall. Nothing on this page is a recommendation to buy or sell any stock.
The bottom line#
Read the income statement in order: revenue, gross profit, operating profit, net income, then EPS. Compare each line with the same period a year earlier, check the notes for one-time items, and treat adjusted figures as a starting point for questions, not answers. Then move on to earnings per share and the P/E ratio, which both start from the bottom line you just read.
Sources
- What is an income statement?.
- CONSOLIDATED STATEMENTS OF OPERATIONS (Apple Inc. Form 10-K for the fiscal year ended September 27, 2025, R3).
- How to Read a 10-K/10-Q | Investor.gov.
- Evaluating Stocks.
- 17 CFR 210.5-03 Statements of comprehensive income.
- CONSOLIDATED STATEMENTS OF INCOME (The Coca-Cola Company Form 10-K for the fiscal year ended December 31, 2025, R3).
- Apple Inc. Form 10-K for the fiscal year ended September 27, 2025.
- Microsoft Corporation Form 10-K for the fiscal year ended June 30, 2026.
- Kenvue separation and discontinued operations (Johnson & Johnson Form 10-K for fiscal 2025, R31).
- Consolidated Statements of Earnings (Johnson & Johnson Form 10-K for the fiscal year ended December 28, 2025, R5).
- 17 CFR Part 244 Regulation G.
- Beginners' Guide to Financial Statements.
Education only. This page is not investment, tax or legal advice. Stocks can lose value. See our risk disclosure.
