Income statements to evaluate companies’ growth, profitability

 The Income Statement: measures performance over a specific period (a year)

Revenue − Expenses = Income

The operations report the firm’s revenues and expenses from principal operations. One number of particular importance is earnings before interest and taxes (EBIT), which summarizes earnings before taxes and financing costs. Among other things, the nonoperating of the income statement includes all financing costs, such as interest expense. Net income is frequently expressed per share of common stock that is, earnings per share.

Earnings per share = Net income / Total share outstanding

Dividend per share = Dividend / Total share outstanding

💦non-cash items: There are several noncash items that are expenses against revenues but do not affect cash flow. Depreciation reflects the accountant’s estimate of the cost of equipment

used up in the production process. Deferred taxes result from differences between accounting income and true taxable income.

Accounting costs usually fit into a classification that distinguishes product costs from period costs. Product costs are the total production costs incurred during a period—raw materials, direct labor, and manufacturing overhead—and are reported on the income statement as cost of goods sold. Both variable and fixed costs are included in product costs. Period costs are costs that are allocated to a time period; they are called selling, general, and administrative expenses.