The income statement is one of the four financial statements used by businesses when reporting the financial condition of their company. The four include: the balance sheet, the income statement, the statement of owner's equity and the statement of cash flows. The balance sheet provides a snapshot of the financial condition of the company on a specific day (usually December 31), whereas the income statement reports the amount of revenue a company earned over a specific time period (usually for a year). Common stock is reported on both the balance sheet and the income statement.
The Income Statement
An income statement shows the expenses and costs associated with earning the company's revenue. The bottom line of the income statement indicates how much the company earned or lost over the period. The equation for an income statement looks like this: Net Income equals revenue minus expenses plus gains minus losses.
The income statement has interest to investors because it records the company's operating activities for the year and serves as a guide in anticipating how well the corporation will do in the future.
Common Stock: Earnings Per Share
Income statements also report earnings per share (EPS). Earnings per share represent the amount of earnings related to one share of common stock. There are two types of earnings per share: basic earnings per share and diluted earnings per share (which include the impact of stock options, grants and convertible bonds). If the corporation has both types of earnings, both must be reported.
EPS Calculation
The EPS calculation reports how much money shareholders would receive should the company decide to distribute all its net earnings for the period. To calculate EPS, the total net income is divided by the number of outstanding shares of the company.
Common Stock is Reported Twice
Under the consolidated balance sheet, common stock is listed under the column entitled shareholders equity. If the corporation has issued preferred stock, this is listed first. Common stock is listed next and is reported like this:
Common stock $X.XX par value,
Authorized XX,XXX,XXX shares,
Issued XX,XXX,XXX shares
On the consolidated income statement, common stock is listed as net income and appears like this:
Common Shares Outstanding XX,XXX,XXX
Earnings per common share before extraordinary loss $X.XX
