An operating statement, also known as an income statement or profit and loss statement, is a financial document that shows the revenue, expenses, and profit or loss of a company over a specific period of time, usually a month, quarter, or year. It provides an overview of a company's financial performance and helps stakeholders analyze its profitability.
The key components of an operating statement include:
Revenue: This represents the total amount of money generated from the sale of goods or services. It includes sales revenue, service fees, and other income streams.
Cost of Goods Sold (COGS): This includes the direct costs associated with producing or delivering the goods or services sold. It typically includes the cost of raw materials, direct labor, and manufacturing overhead.
Gross Profit: It is calculated by subtracting the COGS from the revenue. Gross profit reflects the profitability of a company's core operations.
Operating Expenses: These are the expenses incurred to support the day-to-day operations of the business. Operating expenses include salaries, rent, utilities, marketing expenses, insurance, and other overhead costs.
Operating Income: Also known as operating profit or earnings before interest and taxes (EBIT), it is calculated by subtracting the operating expenses from the gross profit. Operating income measures the profitability of a company's core operations before other factors, such as interest and taxes.
Other Income and Expenses: These are non-operating gains or losses that are not directly related to the core business operations. They may include interest income, interest expense, gains or losses from the sale of assets, and other miscellaneous income or expenses.
Net Income: It is calculated by subtracting other income and expenses from the operating income. Net income represents the bottom line profit or loss of a company after all expenses and taxes have been accounted for.
An operating statement is an important tool for evaluating a company's financial performance, determining its ability to generate profits, and making informed business decisions. It is typically used by management, investors, lenders, and other stakeholders to assess the financial health and profitability of a company.
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