Income Statement

The income statement will show how a company’s net profits are derived. The income statement is filed quarterly, half-yearly and annually. When studying the income statement, the gross margins of the company can be calculated from it. Increasing gross margins overtime can be a good thing. This could be due to lower costs and increased revenues.

Studying the income statements over several years can paint a picture of the company’s financial health. For example, if revenues and net profits have increased over time, one can deduce that the company is doing well in general.

A company that has a poor record of generating earnings may not be a candidate worthy of short selling while a company that has a good record of generating earnings may not be a candidate for going long on. For this reason, traders or investors should combine the analysis of the income statement with the analysis of the cash flow and the balance sheet.

Read: Revenues