Financial Reporting: Income Statement Analysis

The income statement summarises a firm's revenues and expenses over the reporting period. Also known as the P&L statement, it can be analysed and presented as a management report in several ways.

1. Comparative analysis

• Variance analysis — current performance vs budget (e.g. Feb 2020 actual vs Feb 2020 budget), comparing each P&L line against targets.
• Comparison with the immediate past period (e.g. Feb 2020 vs Jan 2020) to spot shocks.
• Comparison with the same period last year (e.g. Feb 2020 vs Feb 2019) to establish trends.

2. Each line as a percentage of total revenue

This singles out the biggest income and expense lines to address in the variance notes.

3. Ratio analysis

Gross profit margin, net profit margin, EBITDA and other profitability ratios, compared against past periods, budget, and industry ratios.

4. Report in prose

Analytical reports mean little to non-accountants unless explained plainly: highlight outliers, explain why they happened, recommend how to stop negative trends or sustain positive ones, and share expectations and initiatives for coming periods.

5. Throw in a graph or two

Use graphs to highlight trends and differences between periods.

6. Present your report like a pro

Clear, professional presentation makes the analysis accessible and actionable for decision-makers.