The Short Answer

How Do You Read an Income Statement?

Textbook Definition

An income statement reports a company’s revenues, expenses, and resulting net income over a period of time. Public companies file it in the 10-K as the consolidated statement of operations.

In Plain English

Read it top to bottom. Revenue, minus the cost of what was sold, minus the cost of running the company, minus interest and taxes, equals net income. Then turn each cost into a percent of sales and compare it to last year.

That last step is the one beginners skip. A dollar figure by itself says almost nothing. Apple’s cost of goods sold went up in dollars over five years, but down as a share of sales, which is good news. You only see that when you divide. New to a term? Every one is in the financial statements glossary.

Where It Lives

What Is the Income Statement Called in a 10-K?

Apple titles it the Consolidated Statements of Operations. The labels on the filing do not always match the textbook. Here is the translation.

Filing labelWhat it means
Total net salesRevenue
Total cost of salesCost of goods sold (COGS)
Gross marginGross profit (dollars, not a percent)
Selling, general and administrativeSG&A (overhead)
Total operating expensesOperating expenses (SG&A + R&D)
Operating incomeEBIT
Other income/(expense), netInterest and other items (Apple folds interest in here since fiscal 2024)
Provision for income taxesTaxes
Net incomeNet income (the bottom line)

One Real Company

Apple’s Income Statement, 2021 to 2025

Five years, side by side. Read across a row to spot the trend. Read down a column to see how one year’s sales turned into profit.

Company: Apple Inc.Fiscal years end in SeptemberUnits: $ millions
Line20252024202320222021
Revenue (Total net sales)416,161391,035383,285394,328365,817
Cost of goods sold220,960210,352214,137223,546212,981
Gross profit195,201180,683169,148170,782152,836
SG&A27,60126,09724,93225,09421,973
Research and development34,55031,37029,91526,25121,914
Depreciation11,69811,44511,41911,10411,284
Total operating expenses62,15157,46754,84751,34543,887
Operating income (EBIT)133,050123,216114,301119,437108,949
Interest expenseN/DN/D3,9332,9312,645
Earnings before taxes132,729123,485113,736119,103109,207
Taxes20,71929,74916,74119,30014,527
Net income112,01093,73696,99599,80394,680
Revenue growth6.4%2.0%−2.8%7.8%n/a
COGS as % of revenue53.1%53.8%55.9%56.7%58.2%

Source: Apple Form 10-K filings as summarized in the book. N/D = not disclosed (Apple folded interest expense into other income after fiscal 2023).

The Method

How to Read It in 6 Steps

The same six steps work on Apple, Microsoft, or the corner coffee shop.

  1. Start at revenue, and its growth rate.

    Revenue is the most solid number on the page. Check the growth rate year by year. Apple grew 7.8%, then −2.8%, then 2.0%, then 6.4%. Steady beats spiky.

  2. Turn cost of goods sold into a percent of sales.

    Dollars grow with the company. Percentages show the trend. Apple’s COGS fell from 58.2% of sales to 53.1%, so each sale keeps more. That is gross profit getting stronger.

  3. Do the same with operating expenses.

    Split them into SG&A (overhead) and R&D (new products). Apple’s operating expenses rose from 12.0% to 14.9% of sales, mostly R&D. Ask whether rising costs are waste or investment.

  4. Compare operating income growth to sales growth.

    Operating income (EBIT) is profit from the business itself. In 2025 Apple’s EBIT grew 8.0% while sales grew 6.4%. Profit growing faster than sales means real efficiency.

  5. Check interest, other income, and taxes.

    These sit between operating income and the bottom line. Watch for disclosure changes: Apple stopped listing interest expense separately after fiscal 2023. Watch for one-time hits, like the 2024 tax charge.

  6. Read net income last, and ask why it moved.

    Net income is the result, not the reason. Apple’s fell two years in a row and then jumped 19.5%. Steps 1 to 5 tell you why.

Worked Example: Apple, Fiscal 2025 ($ millions) Revenue 416,161 − cost of goods sold 220,960 = gross profit 195,201 (46.9% of sales) Gross profit 195,201 − operating expenses 62,151 = operating income 133,050 (32.0% of sales) Operating income 133,050 + other income (321) = earnings before taxes 132,729 Earnings before taxes 132,729 − taxes 20,719 = net income 112,010 (26.9% of sales) Effective tax rate: 20,719 ÷ 132,729 = 15.6%. Apple keeps about 27 cents of every sales dollar.

Compare It

Apple vs. Microsoft: Same Statement, Two Different Businesses

A number means more next to a rival. Apple sells physical devices with real material costs. Microsoft sells mostly software, which costs little to copy. Watch how that one difference shows up on every line.

Fiscal 2025AppleMicrosoft
Revenue$416B$282B
Revenue growth, 5-year averageabout 3 to 4%about 14%
Gross margin47%69%
Operating margin32%46%
R&D as % of salesabout 8%11 to 12%
Net income$112B$102B
Net profit margin27%36%
Effective tax rateabout 16%about 18%

Microsoft’s fiscal year ends in June, Apple’s in September.

Apple earns more total profit. Microsoft keeps more of each dollar. Neither is “better.” The income statement just shows you how each one makes its money. Margins are covered in depth in gross margin vs. net margin.

Beginner Traps

What Do Beginners Get Wrong on an Income Statement?

  • Reading net income first and stopping there.
  • Comparing dollar amounts instead of percent of sales.
  • Judging the company on one year instead of five.
  • Missing a one-time item, like Apple’s 2024 tax charge.
  • Thinking a line disappeared when the company just changed how it reports it.
  • Treating profit as cash. That is what the cash flow statement is for.

How the Book Grades Apple’s Income Statement

B+Revenues
ACost of Goods Sold
B+SG&A
AR&D
BOperating Expenses
A-EBIT
B+Interest Expense
B+Net Income
ATax Rate
The reasoning behind every grade, plus Apple’s full report card, is in the book.Get the Book on Amazon →

From the Book

Why Analysts Start at the Top Line

Income Statement · Revenues

The Hardest Line to Fake

Revenue sits a little closer to solid ground. It is generally the hardest of the major line items to massage, which is one reason analysts so often begin their read of a company at the top line.

Every income statement line, five years of Apple numbers, Microsoft beside it, and a grade for each. It is all in the book.

Get the Book on Amazon →

Own a Business?

Your profit and loss statement reads the same way, just with smaller numbers. Start with the owner version, what is an income statement. If nobody is reading your numbers every month, Dr. Paul works with owners as a part-time financial lead. See fractional CFO services.

Beyond the Book

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FAQ

Income Statement Questions

What are the main parts of an income statement?
Revenue at the top, then cost of goods sold, gross profit, operating expenses, operating income, interest and other items, earnings before taxes, taxes, and net income at the bottom. Each line answers one question about how the company turned sales into profit.
Should you start at the top or the bottom of an income statement?
Start at the top. Revenue is the hardest line to massage, so it is the most solid ground. Then work down, turning each cost into a percentage of sales so you can compare years and companies of different sizes.
What is a good net profit margin?
It depends on the industry. Apple kept about 27 cents of every sales dollar as net income in fiscal 2025, and Microsoft kept about 36 cents. A grocery store may keep 2 or 3 cents. Compare a company to its own past years and to its direct rivals, not to a universal number.
Why did Apple's net income drop in 2024?
Mostly because of a one-time European tax charge. Apple's effective tax rate jumped to about 24.1% that year, then fell back to about 15.6% in 2025, when net income rose 19.5% to a record $112.0 billion. One-time items are why you read five years, not one.

Keep Going

Related Guides

The income statement connects to the rest of the statements. Start with the full guide to reading financial statements.

Guide 6 · Cost of Goods Sold

What it includes, and why the percent matters more than the dollars.

Guide 8 · Operating Income vs. EBT

Two profit lines that sound alike and answer different questions.

Guide 10 · Net Income

The bottom line, step by step, and why it moved.

Guide 11 · Balance Sheet

The income statement covers a year. The balance sheet shows one day.

Owner Version · COGS

How a small business calculates cost of goods sold and unit cost.
← Back to the GuideAll 34 Financial Statement Guides

Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and adjunct finance instructor with an MBA focused in finance. Building projected income statements for a lender? See financial projections for a business plan.

This page is for general educational purposes only. It is not investment, financial, tax, accounting, or legal advice, and nothing here is a recommendation to buy or sell any security. Apple and Microsoft figures come from their public filings as analyzed in the book. Apple and Microsoft are trademarks of their respective owners, and this page is not affiliated with or endorsed by either company.