What it shows
The income statement shows how much a company sold during a period and how much of that became profit. It reads from top to bottom, subtracting costs as it goes.
Line by line
| Line | What it is | What to check |
|---|---|---|
| Revenue | Sales to customers | Revenue growth (TTM and forward) |
| Cost of revenue | Direct cost of the product | |
| Gross profit | Revenue - cost of revenue | Gross margin |
| Research and development | Building future products | Share of revenue over time |
| Sales, general and admin | Selling and running the company | Should grow slower than revenue |
| Operating income | Gross profit - operating costs | Operating margin |
| Interest and other | Financing costs and income | Rising interest is a warning |
| Income tax | ||
| Net income | What is left for shareholders | Net margin |
| EPS, basic and diluted | Net income per share | EPS growth (TTM and forward) |
What matters most
- Revenue growth and its trend.
- Margins at each level and whether they are expanding.
- Operating expenses growing slower than revenue (operating leverage).
- Diluted share count: a rising count means dilution, often from stock compensation.
Common traps
- One-off gains (selling a division) can inflate net income for a single period.
- "Adjusted" figures in the press release exclude costs; compare with the GAAP statement. See Earnings per share (EPS).
- A quarter compared with the previous quarter can mislead for seasonal businesses. Compare with the same quarter a year earlier.
See also
- How to read financial statements A beginner's guide to the three financial statements, the income statement, balance sheet and cash flow statement, and how they fit together.
- Gross margin What gross margin is, what it reveals about pricing power, typical ranges by industry, and why its trend matters as much as its level.
- Operating margin Operating margin measures profit from the core business before interest and tax. How it differs from gross and net margin and how to use it.
- Earnings per share (EPS) What earnings per share means, basic versus diluted EPS, GAAP versus adjusted EPS, and how EPS connects profit to the share price.
Last updated September 30, 2026. Education only, not investment advice.