The short answer
An income statement, or statement of operations, reports revenue and expenses over a period and ends in net income. Read it top-down through the subtotals: gross profit shows pricing against direct costs, operating income shows the business before financing, and net income is what is left after interest and tax.
Example Trades Ltd.
Income Statement
For the year ended December 31, 2025, with comparative figures for 2024
| Note | 2025 | 2024 | |
|---|---|---|---|
| Revenue | 1,240,000 | 1,080,000 | |
| Cost of sales | (744,000) | (659,000) | |
| Gross profit1 | 496,000 | 421,000 | |
| Operating expenses | |||
| Wages and benefits | (210,000) | (188,000) | |
| Rent | (48,000) | (46,000) | |
| Vehicle | (36,000) | (31,000) | |
| Amortization2 | 3 | (42,000) | (38,000) |
| Other | (48,000) | (44,000) | |
| Total operating expenses | (384,000) | (347,000) | |
| Operating income | 112,000 | 74,000 | |
| Interest expense | (14,000) | (11,000) | |
| Income before income taxes | 98,000 | 63,000 | |
| Income taxes | (11,000) | (7,000) | |
| Net income | 87,000 | 56,000 | |
- 1Margin held. Gross margin was 40.0% in 2025 against 39.0% in 2024, so the extra revenue did not come from cutting prices.
- 2Amortization is real but not cash. It spreads the cost of equipment over its life. That is why the cash flow statement adds it back.
Margins worth calculating
| Measure | 2025 | 2024 |
|---|---|---|
| Gross margin (gross profit ÷ revenue) | 40.0% | 39.0% |
| Operating margin (operating income ÷ revenue) | 9.0% | 6.9% |
| Net margin (net income ÷ revenue) | 7.0% | 5.2% |
| Interest coverage (operating income ÷ interest) | 8.0× | 6.7× |
What it does not tell you
Revenue is recognised when it is earned, not when it is paid. A business can report a profit while running short of cash, because its customers have not paid yet or it has bought equipment. That is what the cash flow statement is for.