The Real Income Statement

You might have learned about Income Statements in a previous lesson, but the Income Statement is actually a bit more complicated than what we showed you earlier! 🤔

You might have learned about Income Statements in a previous lesson, but the Income Statement is actually a bit more complicated than what we showed you earlier! 🤔

As a reminder: Revenue - Expenses = Net Income

But there are different types of expenses, or costs, that a company can incur 📉

The Income Statement can actually be broken down into a series of 3 different equations that build upon each other 🧩

Let’s take a look:

1) Revenue - Cost of Goods Sold = Gross Profit 📊

2) Gross Profit - Operating Expenses = Operating Income 💼

3) Operating Income - Interest - Taxes = Net Income 📈

Notice that in each equation, we’re essentially subtracting a “new” cost from the result of the previous equation, to eventually get all the way from Revenue down to Net Income 🚀

In the next couple of lessons, let’s dive deeper into these equations, their components and the stories they tell about a company’s profitability 🏊‍♂️

Test your knowledge

What is subtracted from Revenue to get Gross Profit?

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What do you subtract from Gross Profit to find Operating Income?

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How many different equations are used to break down the Income Statement?

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What's next?

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