Reading an income statement

The income statement (also called the Profit & Loss or P&L statement) answers one question: did the company make money during this period? It covers a span of time, a quarter or a financial year, unlike the balance sheet, which is a snapshot on a single day.

Think of it as a waterfall. Revenue flows in at the top, and as you move down, various costs are subtracted: raw materials, employee salaries, depreciation, interest on debt, and taxes. What remains at the bottom is the profit that belongs to shareholders, called Profit After Tax (PAT) or Net Income.

In India, companies listed on NSE or BSE file quarterly and annual results with their income statements following Ind AS (Indian Accounting Standards), which are closely aligned with IFRS. Learning to read these filings directly from exchange disclosures is a core skill.

Key line items in sequence (Ind AS format):

• Revenue from Operations: core sales of goods or services. Watch for separately disclosed "other operating revenue."
• Cost of Materials / Cost of Goods Sold: direct input costs. Gross Profit = Revenue − COGS.
• Employee Benefits Expense: salaries, PF, gratuity, ESOP charge.
• Other Expenses: selling, distribution, admin, repairs.
• EBITDA: Earnings Before Interest, Tax, Depreciation & Amortisation. Not a line item in Ind AS P&L; analysts calculate it.
• Depreciation & Amortisation: non-cash charge spreading the cost of assets over their useful life.
• EBIT / Operating Profit: EBITDA minus D&A.
• Finance Costs: interest on borrowings.
• Other Income: interest earned, dividends, forex gains. Separate from operations.
• Profit Before Tax (PBT): EBIT + Other Income − Finance Costs.
• Tax Expense: current tax + deferred tax.
• Profit After Tax (PAT): the bottom line.

Example: If a company has Revenue of ₹1,000 Cr, COGS ₹600 Cr, Employee costs ₹150 Cr, Other expenses ₹80 Cr, D&A ₹50 Cr, Interest ₹30 Cr, Other income ₹10 Cr, and Tax ₹28 Cr → PAT = ₹72 Cr. PAT margin = 7.2%.