By analyzing an income statement, we can find answers to questions like:
· Is the % of Gross Profit compared to % Gross Income higher or lower than last year? Why?
· How do unique core differentiators impact the gross profit margin?
The analysis of each line item in the income statement compared to the prior year is important.
Ratios,help to compare each income and expense item to the total business income.
The relationship between the expense items and the revenue items is critical in helping businesses become more profitable.
For example: If we are able to increase revenue without increasing certain expenses the business will become more profitable.
Income statements are used to show the gross income, expenses, and net income. Depending the nature of the business the cost of sales (a subtotal of gross profit after direct expenses of sales) may be applicable. Through a careful analysis, they can help reveal ways to imporve your business.