Reading Financial Statements - Terminology
- Revenue = All incoming money a.k.a The Top Line
- Profit = Revenue - Expenses
- Operating Revenue = Money earned from actual sales in a business
- Gross Profit = Operating Revenue - Cost of Goods Sold (COGS)
- Operating Profit = Gross profit - Operating Expenses - Depreciation and Amortization
- Net Profit (or Net Income a.k.a The Bottom Line) = Operating Profit - Interest payments - Taxes
 Cost of Goods Sold (COGS) includes machinery costs, direct labor costs, raw material costs
 Cost of Goods Sold (COGS) does not include money paid to sales department, advertising etc. That goes into Operating Expenses
Earnings Before Interest and Taxes (EBIT) = operating profit + non-operating revenue
 Non-operating revenue includes income from non-core business activities such as income from investing company’s cash, income gained by selling a division etc.
- Growth in EBIT doesn’t tell the full story. Look at Growth in Operating Profit (or that in Operating Revenue) if not that in Net Profit a.k.a The Bottom Line
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