The income statement measures a company’s financial performance for the previous period and is also called the profit and loss statement. Therefore, global financial markets eagerly await the financial results and income statements of major companies at the end of the fiscal year or quarter. These results are among the most important indicators of stock market movements, which rise and fall immediately upon their release. Positive results boost investor confidence in the company and the financial markets, increasing its market value. Conversely, negative and disappointing results weaken investor confidence in the company’s stock, causing its value to plummet as investors begin selling off its shares.

What is an income statement?

It is a statement prepared to show the amount of profit or loss for a company during a specific period of time, and it is one of the four most important financial statements (income statement – balance sheet – cash flow statement – statement of changes in partners’ equity).

The income statement shows the following data:

• Company revenues.
• Direct costs.
• Administrative expenses.
• Net profit and loss.
• Dividends per share.

This is done over a specific period of time, usually a calendar year or a calendar quarter. The income statement is prepared by the company’s finance department and then audited by an external auditing firm to verify its accuracy, or more precisely, to ensure that it is prepared in accordance with generally accepted accounting principles and standards.

Accountants worldwide follow two levels of accounting standards:

• GAAP Generally Accepted Accounting Principles (GAAP) in the United States of America.
• IFRS International Financial Reporting standards in the rest of the world.

The basic accounting principles followed by all accountants worldwide are the following seven principles:

1. The principle of meritocracy.
2. The principle of monetary unit of measurement.
3. The principle of caution and prudence.
4. The principle of continuity.
5. The principle of historical cost.
6. The matching principle for revenues and expenses.
7. The principle of full disclosure.

For a deeper understanding of the income statement, we will read together Amazon ’s results    for the third quarter of 2021.

Amazon’s earnings report for the third quarter, which is listed on the US stock exchange under the NASDAQ index, showed the following figures:

After reviewing Amazon’s income statement results, we note the following:

1. The company’s total revenue decreased in quarter 3 compared to quarter 2 of the same year.
2. The company maintained approximately the same gross profit margin of 43.2%.
3. Operating expenses increased in quarter 3 compared to quarter 2.
4. Lower revenues and higher operating expenses led to a decrease in EPS to   $ 6.3 per share in Q3 compared to $17.76 per share in Q2 .

Overall, Amazon showed  slower growth and weaker performance during the third quarter of 2021 , as the coronavirus pandemic, which had seen the company achieve record numbers in both revenue and net profit, began to recede.

But after Amazon’s disappointing third-quarter results, it lost its top spot in the ranking of the world’s most valuable companies, a position it had held for three consecutive years, to Apple  , which achieved more positive results during the same period.

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