How to Read Your Financial Statements

Income Statement (P&L)

• The income statement shows revenue, expenses, and profit (or loss) over a specific period, telling you whether your business operations are generating or consuming value.
• Revenue (top line) minus Cost of Goods Sold (COGS) equals gross profit; this measures the profitability of your core product before operating expenses.
• Operating expenses include sales and marketing, research and development, and general and administrative costs; these are subtracted from gross profit to get operating income.
• Net income (bottom line) accounts for interest, taxes, and one-time items; for startups, a net loss is expected but should be decreasing as a percentage of revenue over time.