Income Statement

Are you in need of financial services, such as an income statement forecast? An accurate financial projection is essential for any business seeking to succeed and grow.  On this page, we will discuss the income statement and its purpose. 

What is an income statement?

An income statement, also referred to as a profit and loss statement forecast, is an essential financial document that projects a company’s revenue and expenses for a specific period. It enables business owners to evaluate their financial viability and profitability by providing a detailed view of the company’s financial performance in various sections. 

A well-prepared income statement forecast helps businesses allocate resources effectively and plan for growth. Its purpose is to summarize a company’s financial performance over a specific period, such as a month, quarter, or year, by displaying its revenues and expenses, ultimately determining its net income or loss. The income statement is critical in assisting business owners and investors in comprehending the company’s financial well-being, making informed decisions regarding the company’s financial future, such as investing in the business, expanding operations, or reducing expenses. Overall, the income statement is a valuable tool for assessing a company’s profitability, financial health, and potential for growth.

To create an income statement forecast, a business needs to follow these six steps:

Step 1: Estimate gross revenue

The first step in creating an income statement forecast is to estimate the amount of gross revenue that a business expects to generate during a specific period. Gross revenue is the total amount of money a business earns from its sales or services before deducting any expenses. This can be estimated by using historical data, market research, sales projections, or other sources of information.

Step 2: Calculate COGS

The second step is to calculate the cost of goods sold (COGS). COGS is the direct cost associated with producing or delivering a product or service, such as raw materials, labor, and shipping. This can be estimated by using historical data, industry standards, or other sources of information.

Step 3: Calculate gross profit

The third step is to calculate gross profit by subtracting COGS from gross revenue. Gross profit represents the amount of money a business earns after deducting the direct costs associated with producing or delivering a product or service.

Step 4: Estimate operating expenses

The fourth step is to estimate the operating expenses, which include all the costs associated with running the business, such as salaries, rent, utilities, supplies, inventory, taxes, and other expenses. This can be estimated by using historical data, industry standards, or other sources of information.

Step 5: Calculate EBITDA

The fifth step is to calculate earnings before interest, taxes, depreciation, and amortization (EBITDA) by subtracting operating expenses from gross profit. EBITDA represents the amount of money a business earns before deducting interest, taxes, depreciation, and amortization.

Step 6: Calculate net earnings

The final step is to calculate the net earnings by subtracting interest, taxes, depreciation, and amortization from EBITDA. Net earnings represent the profit or loss that a business earns after deducting all expenses.

To sum up, an income statement forecast is a crucial aspect of a business plan or financial projection. It enables a company to gain a better understanding of its financial performance over a specific period by estimating gross revenue, calculating COGS, gross profit, operating expenses, EBITDA, and net earnings. Following the six outlined steps for creating an income statement forecast can lead to improved financial management and informed decision-making for a business.

Our team of expert business plan consultants recognizes the significance of precise and comprehensive financial statements in ensuring the success of any business. BSBCON America creates income statement reports for companies, providing them with a valuable time and effort-saving solution. Get in touch with us today to find out more about our financial forecast services.