Today we will meditate upon the Income Statement.

The most important relationship within an income statement is simply :

Gross income - Total expenses = Net Profit (loss)

It is obviously not so simple :

Operating income = Sales - Expenses, expenses being cost of goods sold, sales and general expenses and depreciation.
Income before taxes = Operating income - interest charges
Net income (loss) = income before taxes - provision for taxes

From an internal management perspective, this is a precious data on how to improve the bottom line :

Can we improve sales by marketing harder ?Is the rise in cost of goods outstripping inflation ? Can we negotiate harder with suppliers ?Are general expenses increasing faster than inflation ? Can we cut down on labor costs by outsourcing ?Are we reducing depreciation by playing with accounting rules ? Are we depreciating more because of more equipment we are buying ?Can tax and interest payments be...