🔎 Reading the Numbers · Lesson 2 of 8 · 8 min
The Income Statement: Is It Making Money?
🧾 A company can have a gorgeous logo, a hot product, and a CEO with great hair — and still be quietly torching cash. The income statement is where the makeup comes off and you find out if it actually makes money.
💡 Key idea
Revenue is the top line (sales); net income is the bottom line (profit). Watch the trend and the margin.
🧠 Why it matters
The INCOME STATEMENT (or 'P&L') tells you whether a company made money over a period. It flows top to bottom: REVENUE (the 'top line' — total sales) minus the costs of running the business equals NET INCOME (the 'bottom line' — actual profit). Divide net income by the number of shares and you get EPS (earnings per share) — profit per slice of the company. Watch the trend over several years: is revenue GROWING? Are profits keeping pace, or are costs eating them? Also check PROFIT MARGIN (net income ÷ revenue) — a company keeping 20¢ of every sales dollar is far healthier than one scraping 2¢.
🌍 In the real world
🍕 Picture a pizza shop: $500,000 in sales (revenue) minus $450,000 in flour, rent, and wages leaves $50,000 profit (net income) — a 10% margin. If next year sales rise but profit falls, costs are creeping — a red flag the top line alone would hide.
📌 Takeaways
- Revenue = total sales (top line); net income = profit (bottom line)
- EPS = profit per share
- Track multi-year growth and profit margin, not one number
📖 Terms in this lesson
Earnings per share (EPS): A company's profit divided by its number of shares.
Income statement: The report showing what a company earned, spent and kept as profit over a period.
✅ Test yourself
What's the 'bottom line' on an income statement?
- Total sales
- Net income — the actual profit after costs
- The CEO's salary
- The stock price
Answer: B · Net income — the actual profit after costs
Net income is what's left after all costs — the real profit.
What does EPS (earnings per share) tell you?
- The share price
- Profit divided per share of the company
- Total revenue
- The dividend
Answer: B · Profit divided per share of the company
EPS is net income split across all shares — profit per slice.
Why watch profit margin, not just revenue?
- Margin is irrelevant
- High sales can still mean low profit if costs eat them
- Revenue is fake
- Margin sets the price
Answer: B · High sales can still mean low profit if costs eat them
Profit margin shows how much of each sales dollar the company keeps — sales growth is hollow if margins collapse.
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