An operating statement, also referred to as an income statement or profit and loss statement, is a financial document that provides a summary of a company's revenues, expenses, and net income over a specific period of time. Generally, this period is a month, quarter, or year. The primary purpose of the operating statement is to assess the profitability and financial performance of a business.
The operating statement presents the revenues generated by the company from sales of goods or services, which are often referred to as top-line revenue or sales revenue. It also includes any discounts, returns, and allowances deducted from the overall revenue. On the expense side, it outlines the costs incurred by the business to generate revenue, such as cost of goods sold, operational expenses, and administrative costs.
The operating statement calculates the gross profit by subtracting the cost of goods sold from the total revenue. It further deducts various types of operating expenses like rent, utilities, salaries, advertising costs, and depreciation to determine the operating profit or loss. Finally, it includes non-operating income and expenses, such as interest income or expenses, to arrive at the net income or net loss figure for the period.
Investors, creditors, and business managers widely use the operating statement to evaluate the financial health and profitability of a company. It provides insight into the efficiency of a company's operations, its ability to control costs, and its overall financial performance over time, serving as a valuable tool for decision-making and financial planning.
