If you’re new to investing or business finance, one of the first terms you’ll come across is the earnings statement. It might sound technical, but understanding it is key to making smart financial decisions—whether you’re investing in stocks or running a business.
In this post, we’ll break down what an earnings statement is, what’s inside it, and why it matters so much in the world of money and markets.
What Is an Earnings Statement?
An earnings statement—also known as an income statement or profit and loss (P&L) statement—is a financial document that shows a company’s performance over a specific period, typically a quarter or a full year.
It answers a very simple but crucial question:
Did the company make money or lose money?
Companies are required to release these statements regularly if they’re publicly traded, and investors use them to assess whether the business is growing, stable, or struggling.
Key Parts of an Earnings Statement
Here’s what you’ll typically find in an earnings statement:
1. Revenue (Sales)
This is the total amount of money the company brought in during the period. It’s often called the “top line.”
2. Cost of Goods Sold (COGS)
The direct costs related to producing the company’s goods or services.
3. Gross Profit
Revenue minus COGS. It shows how efficiently the company is producing its goods.
4. Operating Expenses
These include things like salaries, rent, and marketing costs—expenses not directly tied to making a product.
5. Operating Income
This is the profit from the company’s core business activities, before taxes and interest.
6. Net Income
Also known as the “bottom line.” This is the final profit (or loss) after all expenses, taxes, and interest are deducted.
Why Earnings Statements Matter for Investors
Earnings statements are one of the most important tools investors use to:
- Evaluate a company’s financial health
- Compare performance across companies or industries
- Predict future growth
- Make buy, hold, or sell decisions
Example:
If a company consistently grows its net income quarter after quarter, it signals strong business performance—and that can attract investors and push the stock price higher.
Earnings Statements vs. Balance Sheets
While an earnings statement shows how much a company made over time, a balance sheet gives a snapshot of what a company owns and owes at a single point in time.
Both are important—but earnings statements give a clearer view of profitability.
Where to Find Earnings Statements
You can easily find earnings statements for public companies on:
- The company’s investor relations page
- SEC’s EDGAR database (for U.S. companies)
- Financial sites like Yahoo Finance, MarketWatch, or Morningstar
They’re usually published every quarter and are part of a broader earnings report.
Final Thoughts: Don’t Ignore the Numbers
Whether you’re just starting your investment journey or running your own business, learning how to read an earnings statement can give you a huge advantage. It helps you make decisions based on facts, not hype.
So the next time a company reports earnings, don’t just look at the headlines—dig into the statement and see what’s really going on.
