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An income statement is one of the many financial tools that Canadian entrepreneurs can use to measure profitability. Learn how to use an income statement to evaluate your business’ sustainability.
A calculation of a company’s revenue and sales less its expenses over a designated period of time.
The income statement starts with revenue/sales less direct costs and operating expenses resulting in the net income at the bottom of the income statement.
The revenue/sales generated by the business minus the costs directly associated with the goods and services sold.
Gross Profit Margin
The gross profit divided by revenue/sales
The gross profit minus fixed and variable operating costs of running the business (over and above those costs directly tied to production)
The “bottom line” or end-point of the income statement.
Net Profit Margin
Net income divided by revenue/sales
Learning how to use an income statement to increase profitability requires more than just knowledge of what each element within the statement indicates. More than accurately calculating whether the business generates profits, entrepreneurs need to understand why this has happened and what it indicates about the sustainability of their business model.
An income statement is actionable and should enable business owners to take the necessary steps to improve margins. If you have any questions about building an accurate reflection of your financial situation or how you can improve operations to grow profit margins, contact us today.