Introduction to the income statement

Analyzing Financial Statements in Python

Rohan Chatterjee

Risk Modeler

The income statement

Shows company's revenue and expenses over a period of time
Expenses:
- Operating expenses
- Non-operating expenses

This is an image of an income statement. It is contains the revenue, expenses(both operating and non operating), profit before taxes and profit after taxes.

Gross margin

Ratio of total revenue after taking out cost of goods sold to total revenue
Proportion of revenue left after subtracting cost incurred to earn the revenue

Formula:

$$\dfrac{\text{Total Revenue - Cost of Goods Sold}}{\text{Total Revenue}}$$

Operating margin

Ratio of total revenue after taking out operating expenses to total revenue
Proportion of revenue left after operating expenses

Formula:

$$\dfrac{\text{Total Revenue - Operating Expenses}}{\text{Total Revenue}}$$

Family of ratios

Efficiency ratio

Measures company's ability to generate income via its resources
For example:
- Gross margin
- Operating margin

Let's practice!

Analyzing Financial Statements in Python