Financial Reporting: Income Statement Analysis


The income statement contains summarized information about firm’s revenues and expenses over the reporting period. Also known as P&L statement can be analysed and presented as a management report in several ways.

1. Comparative analysis:

a) Variance analysis of the the current performance against the budget: i.e. Feb 2020 Actual vs Feb 2020 budget. This analysis helps to compare current performance against set targets for each line in the P&L.

b) Comparison with the immediate past period: I.e. Feb 2020 Actual vs Jan 2020. This analysis helps to establish any shocks in performance compared to the immediate past period.

c) Comparison with same period last year: i.e. Feb 2020 Actual vs Feb 2019. This comparison helps to establish business trends over time.

2. Each line as a percentage of total revenue: My favorite. This analysis helps to single out the biggest income and expense lines and ‘address’ them in the accompanying notes to the variance analysis.

3. Ratio Analysis: Some of the most common profitability ratios. Gross profit margin, Net profit Margin. EBITDA etc. Once these ratios are calculated, compare with past periods, budget, industrial ratios etc.

4. Report in prose: Most of the above analytical reports will not make sense to non Accountants if not explained to them in a language they will understand. Talk to the figures highlighting the outliers and explaining reasons why this happened and making recommendations to stop the trend if negative or how to sustain the trend if positive. Also take time to give your expectations on what to expect in the coming periods and any initiatives you will put in place. 

5. Throw a graph or two here and there to help you highlight trends or show difference in performance between periods.

6. Present your report like a Pro. How? Look out for our next write up on data driven Financial Analysis.

Download Free Excel Income Statement Analysis Template

Income Statement Analysis (Click to download)

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