Profitability statement indicates the amount of assets & liabilities.
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What Financial Statements Show Profitability of a Company?
Small Business
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Finances & Taxes
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Financial Statements
By
Jim Woodruff
Updated November 05, 2018
While all financial statements prepared by accountants are connected in some way to profits, the income – or profitability – statement is the one that provides the most details of revenues and expenses and shows profits or losses. While all the financial statements of a business are important and have a distinct purpose, it is the profit and loss statement that gets the most attention. However, a profitability statement can take several forms, and it is essential to understand how they are prepared to make accurate analyses and interpretations.
What Is an Income Statement?
An income statement shows the totals of a company's revenues and expenses. It matches all revenues from selling goods and services against all expenses – including interest, depreciation and taxes – required to operate the company over a specific time period. These statements can be prepared monthly, quarterly or annually. An income statement has several layers of profitability:
Gross profits
Operating profits, or EBITDA (earnings before interest, tax, depreciation and amortization)
Net income
What Is Gross Profit?
Gross profit is the income derived from manufacturing and selling a product or providing a service. It is calculated by subtracting the cost of goods sold from sales before making deductions for general and administrative expenses. Gross profit margin is calculated by dividing gross profit by sales. It is normally presented as a percentage.
The gross profit margin is a measure of how well a company purchases raw materials and uses its labor force to produce and sell a product. Analysts compare each company's gross profit margin to other firms in the same industry to determine its competitiveness. Management monitors changes in the gross profit percentage for trends that indicate improving or declining performance.
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