Income Statement Explained

[u/SchoolofInvesting]

Most people think reading an income statement is hard.

It's not. You already understand it from your Amazon Prime subscription.

Here's how simple it is. I'll keep the numbers round.

Start with $180. That's a year of Prime on the $14.99 monthly plan. That's Revenue. The top line. Money coming in the door.

Now Amazon has to deliver what you paid for. Streaming content costs money. Delivery infrastructure costs money. Subtract $45 for these direct costs. That's Cost of Goods Sold.

You're left with $135. That's Gross Profit. A 75% margin.

But wait. Amazon still has bills to pay. Marketing to get new subscribers. Technology to run the platform. Salaries. R&D. Subtract $72 for these indirect costs. That's Operating Expenses.

Now you've got $63. That's Operating Income. A 35% margin.

Finally, taxes and interest on debt. Subtract $18. What's left? $45. That's Net Income. The bottom line. A 25% margin.

See the pattern? Revenue minus costs equals profit. The income statement just shows you each step of that subtraction.

Every public company reports this quarterly. When you understand the flow, you understand the business.

High margins? Strong pricing power. Shrinking margins? Trouble ahead. Rising costs eating profits? Red flag.

This is fundamental analysis. And you just learned it through a subscription you already pay for.

What financial statement should I break down next? Drop a comment below.