The income statement: the score for the year.

01A score for a period

Remember the pizza shop from the stocks lesson, opened by three friends? After its first year, they want to know one thing: did it make money? The income statement answers that. It covers a stretch of time, a quarter or a year, and runs from everything the shop sold at the top to what was left for the owners at the bottom.

It goes by other names: the profit and loss statement, the P&L, the statement of operations. Same thing.

02Line by line

• Revenue (the top line) counts sales when they are made, whether or not the customer has paid yet.
• Cost of goods sold is what went into the things sold: here, the dough, cheese and boxes. Revenue minus it is gross profit.
• Operating expenses are the costs of running the business: wages, rent, marketing, and at a tech company, research and development.
• Depreciation spreads the cost of long-lasting things over their working life. The shop paid $60,000 for its oven and build-out on day one; the statement charges $12,000 a year for five years rather than all $60,000 in year one.
• Operating income is the profit from running the business, before the costs of how it is financed (interest) and taxes.
• Net income (the bottom line) is what is left for the owners. Divide it by the number of shares and you get earnings per share, the figure behind every P/E ratio.

03The margins

Raw dollars don't compare well between a pizza shop and a chip maker. Percentages of revenue do:

The pizza shop's are 70%, 10.8% and 7.5%. Each margin answers a different question. Gross margin says how much the product earns above its direct cost, a clue to pricing power. Operating margin says how efficiently the whole business runs. Net margin is what reaches the owners after everything.

Try raising the ingredient share from 30% to 35%. Revenue hasn't changed, but $25,000 of profit is gone before tax, and net income halves, from $37,500 to $18,750. Costs that look small next to revenue can be large next to profit.

04What it leaves out

• Cash. Sales count when made, not when paid; depreciation is a cost but not a payment; the $60,000 oven isn't on this statement at all. The pizza shop earned $37,500, yet once it had paid for the oven, the business had used $18,500 more cash than it brought in; the owners' money and the bank loan covered the gap. The cash flow lesson shows why.
• What the business owns and owes. A profitable year says nothing about whether the company is drowning in debt. That's the balance sheet.
• One-offs. A lawsuit settlement or the sale of a building can swing one year's profit. Companies often report an "adjusted" figure without them; the official figure follows the accounting rules (GAAP). Compare both, and read what was adjusted.

05Read a real one: Apple

Three things jump out once you know where to look:

• Two businesses in one. Services (the App Store, iCloud, Apple Music and the like) were 26% of sales but earned a 75.4% gross margin, against 36.8% on devices. Services brought in 42% of all gross profit.
• Profit grew faster than sales. Sales rose 6.4% on the year and operating income 8.0%, but net income rose 19.5%. The difference is the tax line: income taxes took 15.6% of pre-tax profit, against 24.1% the year before, and the notes say why: fiscal 2024 carried a one-time $10.2B tax charge from a European Commission ruling on Apple's taxes in Ireland. Last year's profit was depressed by a one-off, so this year's growth looks flattered. Whenever the bottom line outruns the operating line, look for an explanation like this one in the tax and other-income lines.
• Earnings per share grew faster still, 22.7%, from $6.08 to $7.46, because Apple has fewer shares outstanding each year. Its buybacks are on the cash flow statement.

Source: Apple Inc., Form 10-K for the fiscal year ended September 27, 2025, filed October 31, 2025, Item 8 (Financial Statements and Supplementary Data). Dollar figures in billions, rounded from the reported millions. Find it on SEC EDGAR.