Learn the Best Practices for Creation of a Financial Model Template"
What is an Income Statement?
An income statement is one of the financial statements of a company that shows the company’s revenues and expenses during a particular period. It indicates how the revenues (money received from the sale of products and services before expenses are taken out, also known as the “top line”) are transformed into the net income (the result after all revenues and expenses have been accounted for, also known as “net profit” or the “bottom line”). It displays the revenues recognized for a specific period, and the cost and expenses charged against these revenues, including write-offs (e.g., depreciation and amortization of various assets) and taxes. The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.
One important thing to remember about an income statement is that it represents a period of time like the cash flow statement. This contrasts with the balance sheet, which represents a single moment in time.
The major components of an income statement template are: Component 1: Revenues - Inflows from producing/delivering goods or services. This section includes:
Sales - revenue from day to day activities
Investment Income - interest and dividend income
Gains - Increase in assets from transactions
Component 2: Expenses - Outflows, ie., costs involved in from producing/delivering goods or services
Cost of Goods Sold (COGS)
Selling, general, and administrative expense (SG&A) - rent, salaries, advertising expenses etc.
Depreciation and amortization - decrease in value of assets over time
Losses - Decreases in assets from transactions
Component 3: The equation used in making an Income Statement Template is: Revenues - Expenses = Net Income (gains/loss)
Example: An income statement template of Google, Inc. is shown below:
Getting access to Income Statement Template of a Real Life Company
With the advent of internet and IT, financial statements like income statements are getting more and more accessible to common man with every passing day. Most companies make available their quarterly and annual reports on their corporate website.
In the US, all companies filing with the SEC (http://www.sec.gov/) are required to supply their documents to a service called EDGAR.
EDGAR has free access to more than 20 million filings.
How to Create your own Income Statement?
To create your own Income statement for a company you can download the Annual Report filings for the company from the SEC website and copy the Income statement numbers from there into your own Income Statement Template.
Key Things to Note in an Income Statement Template
Highlighting (using bold) major components like revenue, expenses etc.
Color coding - always differentiate values which are assumed and which are derived using different colors (For further details read our blog on color coding in Excel: CLICK HERE )
Enclose negative values within a bracket
Taking a Step Forward
In case you wish to learn in depth about creating an Income Statement Template and complex financial models for companies, you can join our Financial Modeling course or join our Free Webinars on Financial Modeling.
Download Templates for Income Statement
Unfilled Income Statement Template: I have created an Income statement template for you, where the subheadings are given. You can download the same from here. You can go through the case and fill in the yellow boxes. I also recommend that you try to create this structure on your own.
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