FoundationsMAD Academy0:46Fundamentals

One Long Subtraction

The income statement is revenue with costs removed in a fixed order, and each subtotal along the way answers a different question.

0:46 · 6 scenes

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What the Lesson Covers

0:00An income statement is one long subtraction, in a fixed order.
0:05The order. Revenue down to net income, with a named subtotal at each stage.
0:15What each one tells you. Gross margin is about the product. Operating margin is about the company.
0:24Why the middle one matters most. Operating income excludes financing and tax, so it compares two companies fairly.
0:33The catch. It is accrual accounting. Revenue is recorded when earned, not when paid.
0:41Read the subtotals, and check them against the cash statement.

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