At this point, you should have the ability to understand the most common entries on the income statement, calculate and compare gross, operating, and profit margins, examine depreciation policies and put competitors in the same industry on a comparable basis, calculate ROE, ROA, and asset turnover, have a respectable understanding of how businesses account for minority-owned stakes in other companies, explain the difference between basic and diluted earnings-per-share, appreciate share repurchase programs when stock prices are falling, despise share dilution, be able to explain what "underwater" options are, and discuss why EBITDA is a worthless metric. Congratulations! I hope you feel it was time well spent. Although there is always more to learn, you are further ahead than a majority of people who own stocks, mutual funds, or bonds.
In the future, it may help to think of the income statement as following this general outline:
Revenue - Cost of Revenue = Gross Profit
Gross Profit - All Operating Expenses = Operating Profit
Operating Profit - Interest Expense, Income Taxes, and Depreciation = Net Income from Continuing Operations
Net Income from Continuing Operations - Nonrecurring events (extraordinary items, discontinued operations, etc.) = net income
Net income - preferred stock and other adjustments = net income applicable to common shares
This page is part of Investing Lesson 4 - How to Read an Income Statement. To go back to the beginning, see the Table of Contents.