[{"data":1,"prerenderedAt":74},["ShallowReactive",2],{"seo-guide-how-to-read-an-income-statement":3},{"slug":4,"title":5,"description":6,"pillar":7,"date":8,"updated":9,"type":10,"author":9,"image":9,"imageAlt":9,"imageWidth":9,"imageHeight":9,"keywords":9,"sections":11,"faqs":58},"how-to-read-an-income-statement","How to Read an Income Statement (UK Investor's Guide)","Understand a company's income statement line by line: revenue, gross profit, operating profit, net income and EPS, plus the profit margins that reveal quality.","financial-statements","2026-07-05","","guide",[12,16,21,25,29,33,37,41,45,49,54],{"id":13,"type":13,"title":14,"html":15},"intro",null,"\u003Ch1>How to Read an Income Statement\u003C\u002Fh1>\n\u003Cdiv class=\"seo-callout\">\u003Cdiv class=\"callout-icon\">!\u003C\u002Fdiv>\u003Cdiv class=\"callout-text\">This guide is part of our [Financial Statements course](\u002Flearn\u002Ftrack\u002Ffinancial-statements).\u003C\u002Fdiv>\u003C\u002Fdiv>\n\n\u003Cp>The \u003Cstrong>income statement\u003C\u002Fstrong> (also called the profit and loss, or P&L) shows how much money a company made and spent over a period — a quarter or a year. It answers the question every investor starts with: \u003Cem>is this business actually profitable, and is that profit getting better or worse?\u003C\u002Fem>\u003C\u002Fp>\n\u003Cp>It reads top to bottom like a funnel: start with sales at the top, subtract costs at each stage, and arrive at profit at the bottom. This guide walks down that funnel and shows you the margins that separate a great business from a mediocre one.\u003C\u002Fp>\n\u003Chr>\n",{"id":17,"type":18,"title":19,"html":20},"the-funnel-from-revenue-to-profit","section","The funnel: from revenue to profit","\u003Cp>Each line subtracts a layer of cost from the one above it.\u003C\u002Fp>\n\u003Ctable>\n\u003Cthead>\n\u003Ctr>\n\u003Cth>Line\u003C\u002Fth>\n\u003Cth>What it is\u003C\u002Fth>\n\u003C\u002Ftr>\n\u003C\u002Fthead>\n\u003Ctbody>\u003Ctr>\n\u003Ctd>\u003Cstrong>Revenue (turnover)\u003C\u002Fstrong>\u003C\u002Ftd>\n\u003Ctd>Total sales — the "top line"\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>− Cost of goods sold\u003C\u002Ftd>\n\u003Ctd>The direct cost of producing what was sold\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>= \u003Cstrong>Gross profit\u003C\u002Fstrong>\u003C\u002Ftd>\n\u003Ctd>What's left to cover everything else\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>− Operating expenses\u003C\u002Ftd>\n\u003Ctd>Wages, marketing, admin, R&D\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>= \u003Cstrong>Operating profit (EBIT)\u003C\u002Fstrong>\u003C\u002Ftd>\n\u003Ctd>Profit from the core business\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>− Interest and tax\u003C\u002Ftd>\n\u003Ctd>Cost of debt and the taxman's share\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003Ctr>\n\u003Ctd>= \u003Cstrong>Net income\u003C\u002Fstrong>\u003C\u002Ftd>\n\u003Ctd>The "bottom line" — profit for shareholders\u003C\u002Ftd>\n\u003C\u002Ftr>\n\u003C\u002Ftbody>\u003C\u002Ftable>\n\u003Cdiv class=\"seo-callout\">\u003Cdiv class=\"callout-icon\">!\u003C\u002Fdiv>\u003Cdiv class=\"callout-text\">The most important habit: don't just look at the bottom line. A company can grow net income by cutting costs or through one-off gains while its actual sales shrink. Follow the whole funnel.\u003C\u002Fdiv>\u003C\u002Fdiv>\n\n\u003Chr>\n",{"id":22,"type":18,"title":23,"html":24},"revenue-the-top-line","Revenue — the top line","\u003Cp>Revenue is the total value of goods and services sold. The first thing to check is the \u003Cem>trend\u003C\u002Fem>: is it growing, flat, or falling, and is that growth organic (selling more) or acquired (buying other companies)? Consistent organic revenue growth is one of the hardest things for a business to fake.\u003C\u002Fp>\n\u003Chr>\n",{"id":26,"type":18,"title":27,"html":28},"gross-profit-and-gross-margin","Gross profit and gross margin","\u003Cp>Gross profit is revenue minus the direct cost of what was sold. Expressed as a percentage of revenue, it becomes the \u003Ca href=\"\u002Fglossary\u002Fgross-margin\">gross margin\u003C\u002Fa> — a powerful signal of pricing power. A company that can charge far more than its products cost to make (think luxury brands or software) has a wide gross margin and, often, a durable competitive advantage.\u003C\u002Fp>\n\u003Chr>\n",{"id":30,"type":18,"title":31,"html":32},"operating-profit-and-operating-margin","Operating profit and operating margin","\u003Cp>Subtract the running costs of the business — salaries, marketing, research — and you get operating profit, or EBIT (earnings before interest and tax). As a percentage of revenue this is the \u003Ca href=\"\u002Fglossary\u002Foperating-margin\">operating margin\u003C\u002Fa>, the cleanest measure of how efficiently the core business turns sales into profit before financing and tax distort the picture.\u003C\u002Fp>\n\u003Cp>You'll also see \u003Ca href=\"\u002Fglossary\u002Febitda\">EBITDA\u003C\u002Fa> quoted often — operating profit with depreciation and amortisation added back. It's useful for comparing companies, but be wary: it flatters businesses that spend heavily on equipment.\u003C\u002Fp>\n\u003Chr>\n",{"id":34,"type":18,"title":35,"html":36},"net-income-and-earnings-per-share","Net income and earnings per share","\u003Cp>After interest and tax, you reach net income — the profit that belongs to shareholders. Divide it by the number of shares and you get \u003Ca href=\"\u002Fglossary\u002Fearnings-per-share\">earnings per share (EPS)\u003C\u002Fa>, the figure that drives the most-quoted valuation measure of all, the \u003Ca href=\"\u002Fglossary\u002Fprice-to-earnings-ratio\">price-to-earnings ratio\u003C\u002Fa>.\u003C\u002Fp>\n\u003Cdiv class=\"seo-callout\">\u003Cdiv class=\"callout-icon\">!\u003C\u002Fdiv>\u003Cdiv class=\"callout-text\">Beware \"adjusted\" or \"underlying\" earnings. Companies often present a flattering figure that excludes costs they'd rather you ignore. Always compare it to the statutory (official) number and ask why they differ.\u003C\u002Fdiv>\u003C\u002Fdiv>\n\n\u003Cp>Once you have EPS and a share price, our \u003Ca href=\"\u002Flearn\u002Fpe-ratio-calculator\">P\u002FE ratio calculator\u003C\u002Fa> turns them into a valuation multiple instantly.\u003C\u002Fp>\n\u003Chr>\n",{"id":38,"type":18,"title":39,"html":40},"the-three-margins-side-by-side","The three margins, side by side","\u003Cp>Reading margins over several years tells you more than any single year's profit:\u003C\u002Fp>\n\u003Cul>\n\u003Cli>\u003Cstrong>Gross margin\u003C\u002Fstrong> — pricing power and product economics\u003C\u002Fli>\n\u003Cli>\u003Cstrong>Operating margin\u003C\u002Fstrong> — efficiency of the core business\u003C\u002Fli>\n\u003Cli>\u003Cstrong>Net margin\u003C\u002Fstrong> — what finally reaches shareholders after everything\u003C\u002Fli>\n\u003C\u002Ful>\n\u003Cp>Rising margins usually signal a strengthening business; falling margins are an early warning that costs or competition are biting. See \u003Ca href=\"\u002Fglossary\u002Fprofit-margin\">profit margin\u003C\u002Fa> for how to interpret them together.\u003C\u002Fp>\n\u003Chr>\n",{"id":42,"type":18,"title":43,"html":44},"how-the-income-statement-connects-to-the-other-statements","How the income statement connects to the other statements","\u003Cp>Profit here isn't the same as cash — a sale booked as revenue may not be paid for months. That gap is why you must read the \u003Ca href=\"\u002Flearn\u002Fguides\u002Fhow-to-read-a-cash-flow-statement\">cash flow statement\u003C\u002Fa> alongside it. And the profit a company keeps flows into equity on the \u003Ca href=\"\u002Flearn\u002Fguides\u002Fhow-to-read-a-balance-sheet\">balance sheet\u003C\u002Fa>. One statement never tells the whole story.\u003C\u002Fp>\n\u003Chr>\n",{"id":46,"type":18,"title":47,"html":48},"see-any-company-s-income-statement-on-openbook","See any company's income statement on Openbook","\u003Cp>Openbook lays out revenue, margins and EPS for every UK-listed company over multiple years, so you can spot the trend at a glance instead of digging through annual reports — with a Profitability score that summarises margin quality.\u003C\u002Fp>\n\u003Cp>Check the numbers for \u003Ca href=\"\u002Fequity\u002FDGE\">Diageo\u003C\u002Fa>, \u003Ca href=\"\u002Fequity\u002FGSK\">GSK\u003C\u002Fa>, \u003Ca href=\"\u002Fequity\u002FBP\">BP\u003C\u002Fa> or \u003Ca href=\"\u002Fequity\u002FULVR\">Unilever\u003C\u002Fa>.\u003C\u002Fp>\n\u003Cp>\u003Ca href=\"https:\u002F\u002Fopenbookanalytics.com\" class=\"seo-cta-button\">Start free with openbook (no card) →\u003C\u002Fa>\u003C\u002Fp>\n\u003Chr>\n",{"id":50,"type":51,"title":52,"html":53},"frequently-asked-questions","faq","Frequently Asked Questions","\u003Ch3>What is an income statement?\u003C\u002Fh3>\n\u003Cp>An income statement (or profit and loss statement) shows a company's revenue, costs and profit over a period such as a quarter or a year. It reveals whether the business is profitable and how that profitability is changing over time.\u003C\u002Fp>\n\u003Ch3>What is the difference between revenue and profit?\u003C\u002Fh3>\n\u003Cp>Revenue is the total value of sales — the top line. Profit is what remains after subtracting costs. A company can have large revenue but little or no profit if its costs are high, which is why you follow the whole income statement, not just the top or bottom line.\u003C\u002Fp>\n\u003Ch3>What is the difference between gross, operating and net profit?\u003C\u002Fh3>\n\u003Cp>Gross profit is revenue minus the direct cost of goods sold. Operating profit subtracts running costs like wages and marketing. Net profit is what's left after interest and tax. Each is a stricter measure of profitability than the one above it.\u003C\u002Fp>\n\u003Ch3>What is EPS on an income statement?\u003C\u002Fh3>\n\u003Cp>Earnings per share (EPS) is net income divided by the number of shares outstanding. It shows the profit attributable to each share and is the basis for the price-to-earnings (P\u002FE) ratio.\u003C\u002Fp>\n\u003Ch3>Why is adjusted profit different from statutory profit?\u003C\u002Fh3>\n\u003Cp>Statutory profit follows accounting standards and includes all costs. Adjusted (or underlying) profit is a company's own figure that strips out items it considers one-off, such as restructuring charges. Adjusted figures can be reasonable, but always compare them to statutory profit and understand what's been excluded.\u003C\u002Fp>\n\u003Chr>\n",{"id":55,"type":18,"title":56,"html":57},"related-pages","Related Pages","\u003Cul>\n\u003Cli>\u003Ca href=\"\u002Flearn\u002Fguides\u002Fhow-to-read-a-balance-sheet\">How to Read a Balance Sheet\u003C\u002Fa>\u003C\u002Fli>\n\u003Cli>\u003Ca href=\"\u002Flearn\u002Fguides\u002Fhow-to-read-a-cash-flow-statement\">How to Read a Cash Flow Statement\u003C\u002Fa>\u003C\u002Fli>\n\u003Cli>\u003Ca href=\"\u002Flearn\u002Fpe-ratio-calculator\">P\u002FE Ratio Calculator\u003C\u002Fa>\u003C\u002Fli>\n\u003Cli>\u003Ca href=\"\u002Fglossary\u002Fgross-margin\">Gross Margin Explained\u003C\u002Fa>\u003C\u002Fli>\n\u003Cli>\u003Ca href=\"\u002Fglossary\u002Fearnings-per-share\">Earnings Per Share Explained\u003C\u002Fa>\u003C\u002Fli>\n\u003C\u002Ful>\n\u003Chr>\n\u003Cp>\u003Cem>This page is for informational purposes only and is not financial advice.\u003C\u002Fem>\u003C\u002Fp>\n",[59,62,65,68,71],{"q":60,"a":61},"What is an income statement?","An income statement (or profit and loss statement) shows a company's revenue, costs and profit over a period such as a quarter or a year. It reveals whether the business is profitable and how that profitability is changing over time.",{"q":63,"a":64},"What is the difference between revenue and profit?","Revenue is the total value of sales — the top line. Profit is what remains after subtracting costs. A company can have large revenue but little or no profit if its costs are high, which is why you follow the whole income statement, not just the top or bottom line.",{"q":66,"a":67},"What is the difference between gross, operating and net profit?","Gross profit is revenue minus the direct cost of goods sold. Operating profit subtracts running costs like wages and marketing. Net profit is what's left after interest and tax. Each is a stricter measure of profitability than the one above it.",{"q":69,"a":70},"What is EPS on an income statement?","Earnings per share (EPS) is net income divided by the number of shares outstanding. It shows the profit attributable to each share and is the basis for the price-to-earnings (P\u002FE) ratio.",{"q":72,"a":73},"Why is adjusted profit different from statutory profit?","Statutory profit follows accounting standards and includes all costs. Adjusted (or underlying) profit is a company's own figure that strips out items it considers one-off, such as restructuring charges. Adjusted figures can be reasonable, but always compare them to statutory profit and understand what's been excluded. ---",1783318953280]