What is the purpose of an 'income statement'?

The purpose of an income statement is to provide a detailed summary of a company's revenues, expenses, and profits over a specific period of time. This financial report is crucial for assessing a business's operational performance, as it highlights how much money is earned from sales and how much is spent in the process of generating those revenues.

An income statement typically includes various line items such as gross revenue, operating expenses, non-operating income or expenses, and net income. This structure allows stakeholders to evaluate the profitability of the company, understand cost management effectiveness, and make informed decisions regarding future investments or strategic direction.

By offering insights into the financial health of a company through its earnings and expenditures, the income statement serves as a fundamental tool for investors, management, and analysts to assess the company’s profitability trends over time and against competitors within the industry.