Multi-step statements provide the detail necessary for analysis and making decisions, both internally by business managers and externally by lenders and investors. It also meets the standards regulators require of publicly traded companies, which must adhere to generally accepted accounting principles, or GAAP. After all sources of income and expenses are tallied, and taxes are deducted, the result is net income or net loss. Net income also is sometimes referred to as net profit, earnings, or the bottom line.
A multi step income statement is important because it provides the company, investors, lenders, and other stakeholders deep insight into a company’s financial performance during a period of time and its operating trends. These are advantages or pros compared to the single-step income statement format. The gross margin computes the amount of money the company profits from the sales of its merchandise. This is simply the cash flow in from the sales of merchandise and the cash flow out from the purchase of that merchandise.
Income Statement Format
They use competitors’ P&L to gauge how well other companies are doing in their space and whether or not they should enter new markets and try to compete with other companies. The multi-step income statement’s ability to focus on operating and non-operating activities separately distinguishes it from the single-step income statement. Many companies prepare quarterly and annual income statements based on the calendar.
This figure is found by subtracting the remaining operating expenses from gross profit. Operating expenses are costs that are incurred to support the company’s regular operations. One of the important features of the multiple-step income statement is the sub-total for operating income.
Calculate Operating Income
The income statement doesn’t show Gross profit, separate and calculate Total Operating expenses, or calculate Total Operating income. An example of a single step income statement is Dana Incorporated’s multi step income statement example Consolidated Statement of Operations for the calendar years ended December 31, 2021, 2020, and 2019. It’s available as a 10-K company filing in the SEC’s EDGAR database dated February 23, 2022.
