Statement of Operations

What is a statement of operations?

A statement of operations, also known as an income statement or profit and loss statement, is a financial document that assesses the financial performance of a company over a specific period.

A statement of operations covers a quarter or a fiscal year and contains a comprehensive overview of the company’s revenues, expenses, gains, and losses.

Purpose of a statement of operations.

A statement of operations is a critical tool for finance professionals to evaluate the profitability of a business. It presents the revenues earned during the period, along with the expenses incurred to generate those revenues, resulting in the net income or net loss for the period in question.

Components of a statement of operations.

A well-done statement of operations contains the following:

Revenue.

The revenue section outlines the total income generated by the company during the period in question. This revenue can come from various sources, including sales, interest, rental income, and other revenue-generating operating activities.

Cost of goods sold (COGS).

The cost of goods sold is the direct costs associated with producing or acquiring the products or services sold. This includes the cost of raw materials, labor, and any manufacturing overhead. When you subtract the COGS from revenue, you have the gross profit.

Gross profit.

Gross profit is the difference between your revenue and the cost of goods sold during the specified period. It shows the profitability of your core activities before considering other operating expenses.

Operating expenses.

Operating expenses include all the costs of running the day-to-day operations of your business, excluding the cost of goods sold. This category includes expenses such as payroll, rent, utilities, marketing expenses, depreciation, and administrative costs.

Operating income.

Operating income, also known as operating profit, is the difference between gross profit and operating expenses. It shows the profitability of the company’s core business operations, excluding non-operating items such as interest and taxes.

Non-operating income and expenses.

Non-operating items include income and expenses that are not related to the company’s main business operations. This may include interest income, interest expense, gains or losses on investments, and other miscellaneous income or expenses.

Income taxes.

Income taxes represent the taxes owed based on a company’s taxable income, and applicable tax regulations.

Net income.

Net income, also referred to as net profit or net earnings, is the final line item on the statement of operations. It shows the company’s bottom-line profit after deducting all expenses, including taxes, from total revenue.

A positive net income indicates the company is profitable, and a negative net income shows a net loss.

Importance of the statement of operations.

The statement of operations plays a crucial role in financial analysis and decision-making in several ways.

Performance evaluation.

Finance professionals use the statement of operations to assess the financial performance of a company over a specific period. They can evaluate operational efficiency by analyzing revenue trends, expense management, and profitability ratios.

Investment decision-making.

Investors and analysts rely on the statement of operations to evaluate the financial health and potential of a company before making investment decisions. A company with strong revenue growth, improving profitability, and effective cost management is more attractive to investors.

Budgeting and forecasting.

Finance professionals use historical data from the statement of operations for budgeting and forecasting activities. The statement of operations helps in identifying trends and patterns in revenue and expenses, so they can make informed projections and set realistic financial goals.

Liquidity and solvency analysis.

The statement of operations provides insights into a company’s ability to generate profits and meet its long-term and short-term obligations. Finance professionals analyze liquidity and solvency ratios derived from the statement of operations to assess the company’s financial stability and creditworthiness.

Performance benchmarking.

Comparing the financial performance of a company to its peers or competitors helps identify strengths and areas for improvement.
By analyzing revenue, expenses, and net income, finance professionals can make informed decisions, assess investment opportunities, and drive financial success for the company.

How Airbase helps with a statement of operations.

Airbase’s spend management platform significantly helps with managing and optimizing a company’s statement of operations by streamlining expense tracking, improving visibility, and enhancing control over spend. Here are some key features.

Easy expense tracking and categorization.

Airbase automatically records expenses in real time. Automated categorization means all transactions are allocated to the appropriate categories.

Approval workflows and spend controls.

Airbase’s configurable approval workflows ensure all spending is compliant with company policies and budgets. This optimizes the financial performance shown in a statement of operations.

Vendor management.

A proactive approach to vendor management positively impacts the profitability shown on the statement of operations.

Budgeting and forecasting.

Airbase’s real-time automated GL sync means finance teams work with current data, which in turn helps them make accurate finance projects and track performance.

Financial reporting and analysis.

Airbase’s robust reporting and real-time data collection help finance teams generate custom reports.

Compliance and audit readiness.

Airbase helps companies maintain compliance with regulatory requirements and prepare for audits with an automatic audit trail for every purchase.

By leveraging Airbase’s tools and features, finance teams can enhance financial visibility, control spending, and drive profitability, ultimately contributing to more accurate and insightful statements of operations.