Tuesday, April 24, 2012

Financial Report - Income Statement

Since invest in stock is similar to taking the ownership, the first thing we need to ask is, "Is the company making any profit?" Then the second question is, "How much?"

In order to get the answer, the very first document we need to check is Income Statement. Sometime, it's also know as Profit and Loss Statement. It tell if the company is making money or not for that financial year.

REVENUE - COST = PROFIT


Just take the Revenue minus Cost, this is profit we want. If nothing left after minus the Cost, it mean the company is not making any money. The below example shows the company's profit is $63,887k.


We can also use this report to find out the Gross Profit, by divide Gross Profit over Revenue. From here, we take 262/ 710 = 36.95%. Warren Buffet prefer the company with Gross Profit above 20%.  If you can find a company with > 40% Gross Profit, then it could be a good one. However, still need to review the Balance Sheet and Cash Flow Statement report to have the 3D point of view.
.

2 comments:

  1. Nice articles. Now I know how to read the financial statement. I always lazy to read it, but now u just make it simplified.Thanks for sharing.

    ReplyDelete

Note: Only a member of this blog may post a comment.