If you want to know whether a company actually makes money, the income statement is where you look. It tells one story over a period — a quarter or a year — starting with sales at the top and ending with profit at the bottom.
From the top line down
The income statement is a waterfall. Each step subtracts another layer of cost:
- Revenue (the “top line”) — everything the company sold.
- minus cost of goods sold (COGS) — the direct cost of making those sales → leaves gross profit.
- minus operating expenses (salaries, rent, R&D, marketing) → leaves operating income.
- minus interest and tax → leaves net income, the “bottom line”.
Net income is the real profit left for the owners.
Margins: profit as a percentage
A dollar figure means little without scale — a $1m profit is huge for a corner shop and a rounding error for Apple. Margins fix that by dividing each profit line by revenue:
Net margin = net income ÷ revenue
A company with $100m revenue and $15m net income has a 15% net margin. Gross, operating, and net margins each tell you how much survives at a different stage. Rising margins usually mean a business is getting more efficient or has pricing power.
Earnings per share
Owners care about profit per share they hold, so:
EPS = net income ÷ number of shares
EPS lets you compare a company to its own past and feeds straight into the price-to-earnings ratio you’ll meet soon. Watch for “diluted” EPS, which counts shares that could be created (from options and the like) — a more honest figure.
The takeaway
The income statement runs from revenue down to net income, subtracting costs at each step. Margins show what percentage survives, and EPS puts the profit on a per-share basis — the numbers analysts quote most. (This is education, not investment advice.)