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Income Statement Basics

Learn how to prepare and use an income statement to develop insights into the financial performance of your business

 

Introduction

The income statement is specific to a defined period of time and reflects a business’ revenues (sales), expenses and demonstrates how revenues are transformed into net profit. It enables successful managers to assess critical data and metrics, observe trends, benchmark and plan for the future.   

Components

  • Income (revenue and sales)
  • Variable Expenses
  • Gross Profit and Margin
  • Fixed Expenses
  • Net Profit and Margin

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Agriculture, seafood, and forest products operations use the income statement to assess top line business results (sales), manage expenses, margins and calculate net profits. Income statements prepared at regular intervals allows business owners to assess comparative results and track financial performance. This makes it an important communication tool among family members, business partners, and third parties, not only to stay aligned, but also as a learning tool for newer members of the business team.

Beyond serving as the primary statement of profit and loss for a given period, the income statement enables operations to plan for possible scenarios and answer strategic questions like:

  • Do I have sufficient earnings to cover unexpected increases in input costs?
  • Are my earnings sufficient to fund the next opportunity for growth?
  • How much debt can the business afford given earnings and repayment capacity?
  • Can I afford to purchase new equipment now?
  • Or whatever your big what-if or strategic question is…

Next Steps

Once you have built the income statement, take your financial statements to the next level with more financial tools or a discussion with the Northwest Farm Credit team.

Lender Discussion

Schedule a meeting with your Relationship Manager to review the income statement together. Discuss the following:

  • What am I missing?
  • What do you see as my operation’s financial strengths and weaknesses?
  • Review key ratios and metrics…

Additional Financial Management Resources

Learn more about financial management for agriculture, seafood, and timber operations with additional resources from Northwest FCS: