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This article is one part out of a four part series teaching you how to read an income statement. Click here to view the introduction or scroll to the bottom of this page to select another part.At the very top of the income statement you will notice this (do not be afraid, an explanation is coming):
Annual versus Interim
You can choose to view the income statement information in yearly or quarterly (every three months) intervals. Since a true investor only invests with the big picture in mind, knowing that the main reason people lose money is because they invest with the short term in mind, we will choose to view the income statement using annual information as opposed to short-term values.
Values in Millions
Always pay attention to that little grey text on the top-right that says “Financial data is represented in U.S. dollars” and that the values are in millions. Otherwise, you will open up the income statement and look at RIM’s revenue for 2009 and will think that RIM only makes $11,065.19 a year…as opposed to the slightly higher value of $11,065,190,000.
Also, you will sometimes open an income statement for a tiny company which you know should make no more than a few million dollars a year only to find that their revenue has a value fifteen digits high. Then, you look at that grey text and see the words “Financial data in Japanese Yen” and suddenly life makes sense again. Pay attention to that text.
Period End
All companies operate under what are called “fiscal years” which is any 12-month period that a company uses for accounting purposes. This period may or may not be the same as a calendar year (January to December) and most actually don’t follow the calendar.
So, the information shown for “Period End Date” merely shows the end of the fiscal year that the company is using to report its financial data. As you can see, Research in Motion’s fiscal year ended on February 28, 2009 and started on March 2, 2008 (12 months in total).
If you’re wondering why RIM chose this strange 12-month period as their fiscal year or why any company chooses whichever time frame they have: since a whole battalion of financial statements (such as income statements, balance sheets and cash flow statements) have to be written and released to the public at year end, companies tend to like to end their fiscal years during slow periods when they have time to crunch all the numbers necessary in order to construct their financial statements. Some even choose to coincide it before, after or during tax season for whatever reason.
Period Length
Do I really have to explain this?
Stmt Source
This is the source of the income statement. Since we are using yearly data, that means the numbers for the income statement are taken from the annual report. Companies that are based in the United States will state 10-K as their statement source, but since RIM is based in Canada it has a 20-F form – as will any company that is based outside the United States.
Stmt Source Date
If you need this explained to you, there is a good chance that you are still wearing diapers and/or you have a brain tumour the size of a football which is disrupting your cognitive thinking.
Preface: What you need to know
Part One: General income statement information
Part Two: Revenue, Cost of Revenue and Gross Profit
Part Three: Operating Expenses and Operating Income
Part Four: Net Income and everything else
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