Income Statement Formula  Income statement formula consists of the 3 different formulas in which the first formula states that gross profit of the company is derived by subtracting Cost of Goods Sold from the total Revenues, second formula states that Operating Income of the company is derived by subtracting Operating Expenses from the total gross profit arrived and the last formula states that the Net income of the company is derived by adding the Operating Income with the net value of the non-operating items of the company.

What is the Income Statement Formula?

The term “income statement” refers to one of the three primary financial statements that the company uses to summarize its financial performance over the . The income statement is also referred to as the statement of earnings or profit and loss (P&L) statement. This income statement formula calculation is done by a single step or multiple steps process.

In the case of a single step, the income statement formula is such that the net income is derived by deducting the expenses from the revenues. Mathematically, it is represented as,

Net Income = Revenues – Expenses

In the case of multiple steps, first, the gross profit is calculated by subtracting the from revenues. Then the operating income is computed by deducting from gross profit, and finally, the net income calculation is done by adding operating income and non-operating items.

Income Statement Formula is represented as,

• Gross Profit = Revenues – Cost of Goods Sold
• Operating Income = Gross Profit – Operating Expenses
• Net income = Operating Income + Non-operating Items

The income statement formula under multiple-step method can be aggregated as below,

Net income = (Revenues + Non-operating items) – (Cost of goods sold + Operating expenses)

For eg:
Source: Income Statement Formula (wallstreetmojo.com)

Explanation of the Income Statement Formula

Under the single-step method, the formula for income statement calculation is done by using the following steps:

1. Firstly, the total of all the revenue-generating sources has to be noted from the profit and loss statement.

2. Next, determine the cost of goods sold from the . The cost of goods sold primarily includes raw material costs. Now, in this step, the gross profit can be calculated by deducting the cost of goods sold from the revenues. It is as shown below:

Gross profit = Revenues – Cost of goods sold

3. Next, the operating expenses are also collected from the income statement. Operating expenses primarily include , administrative expenses, etc. Now, in this step, the operating income can be calculated by deducting operating expenses from the gross profit, as shown below.

Operating income = Gross profit – Operating expenses

4. Next, determine the non-operating items such as , one-time settlements, etc. Finally, the net income calculation is done by adding the net of non-operating items (= non-operating income – non-operating expense) to the operating income, as shown below.

Net income = Operating income + Non-operating items

Example of Income Statement Formula (with Excel Template)

You can download this Income Statement Formula Excel Template here – Income Statement Formula Excel Template

Let us take the real-life example of Apple Inc.’s as on September 29, 2018. Fill up the blank spaces based on the following available information.

Below is data for the calculation of Apple Inc.’s annual report.

Gross Profit

= \$215,639 Mn – \$131,376 Mn

Gross Profit for 2016 will be –

Gross Profit for 2016 =\$84,263

Operating Income

Therefore, Operating Income can be calculated as,

Operating income = Gross profit – Operating expenses

= \$84,263 Mn – \$10,045 – \$14,194

Operating Income for 2016 will be –

Operating Income for 2016 = \$60,024

Net Income

Therefore, Net Income can be calculated as,

Net income = Operating income + Non-operating items

=\$60,024 Mn + \$1,348 – \$15,685

Net Income for 2016 will be –

Net Income for 2016 =\$45,687

Similarly, we can calculate gross profit, operating income, and net income for 2017 & 2018, and also, you can refer to the below given excel template for the same.

Relevance and Use of Income Statement Formula

The understanding of the income statement formula is very important for people who are interested in actively trading in the stock market or analyst who investigates the financial performance of a particular company. They are required to know how to read , including the income statement.

One should note that net income is not the same as cash profit. Nevertheless, the ability of a company to generate healthy net income over a long period can be seen as a positive for it in stock and bond prices because it is the net income that compensates for the risks that they have taken. In case a company is unable to generate enough profit, then the value of the stock is likely to plummet. In short, a company with healthy will have higher stock and bond prices.

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