Income statement

A record of performance over a period, running from what customers paid at the top to what owners earned at the bottom. Indian filings usually call it the statement of profit and loss; American filings call it the income statement. The document is the same.

Read it as a waterfall. Out of every ₹100 of revenue, a mid-size consumer company might spend ₹62 on materials and manufacturing, leaving ₹38 of gross profit. Another ₹22 goes on salaries, advertising and administration, leaving ₹16 of operating profit. Interest and tax then take their share, and what survives is net profit.

The value of the waterfall is that it localises a change. Margin fell because input costs rose, or because advertising rose, or because a plant sat idle. Those are three different businesses, and the income statement tells you which one you are looking at.

The Indian format has one feature worth knowing before the first read. It presents expenses by nature rather than by function, so there is no line labelled cost of goods sold and no line labelled selling and administrative expense. Instead there are separate lines for cost of materials consumed, purchases of stock-in-trade, changes in inventories, employee benefits expense, finance costs, depreciation and other expenses. Building a conventional waterfall means assembling those lines yourself, and doing it once for a company teaches more about its cost structure than any summary would.