Have you ever wondered why investors take a serious look at income statements? The simple answer is because they tell the entire story of a business on a single sheet of paper—how much revenue it makes, where the expenses go, and what the actual profit is. Today, let’s get to know the income statement, also called the Profit and Loss Statement, which is a crucial tool that helps clearly understand a company's financial position.

What is an income statement? Simply put, it’s a financial document that shows how much revenue a business earns, how much it spends, and whether it makes a profit or incurs a loss over a specified period. Whether monthly, quarterly, or annually, in English, it’s called a Profit and Loss Statement. For entrepreneurs and investors, this document is like a "mirror" reflecting the true financial health of the business.

The basic formula is straightforward: total revenue minus total expenses equals profit or loss. If revenue exceeds expenses, there’s a profit; if expenses are higher, there’s a loss. It’s similar to our household accounting, just on a larger scale.

When we look into the details, we find that there are multiple levels of profit. The first is gross profit, which is revenue minus only the cost of goods sold. It indicates how much the product or service is priced above its cost. Next is operating profit, which is gross profit minus various operating expenses. Finally, there’s net profit, which is the actual money remaining after deducting all expenses.

There are two formats for preparing an income statement. The one is a straightforward report arranged in order: revenue, expenses, and net profit—easy to read and provides a clear overview. The other is a T-account format, which is more formal and visually clear. Both formats provide the same information; they just present it differently.

Why is this statement important? Because it shows us the business’s direction, whether it’s profitable, and where improvements can be made. Investors use it to decide whether to invest; management uses it to plan strategies. If certain expenses are too high, they might look for ways to cut costs, such as reducing advertising or finding more economical operational methods.

When reading an income statement for the first time, check which period it covers, as that’s crucial for analysis. Then, see whether there’s a profit or loss, and study where the revenue comes from and where the expenses go. For example, in 2022, the Bank of Thailand earned income from various sources like interest received, gains from selling investments, fees, and other income, while expenses included interest payments, staff costs, and other expenses.

Learning how to read an income statement is a valuable skill for anyone interested in finance—whether investors, entrepreneurs, or even business employees. But remember, investment decisions shouldn’t be based solely on the income statement. Consider other factors too, such as the nature of the business, the quality of the management team, and market trends. If you want to see financial data and analyze prices, you can check out Gate.