A simple guide on how to read an income statement, financial statement, or earnings report, perfect for stock market beginners. If you’re a beginner to the stock market, you’ll have to learn how to read an income statement released every 3 months by companies. The earnings report shows you how a company is doing in terms of revenue, profits, and losses. If a company is doing well on their financial statement, their stock price usually goes up, if they did less than expected in numbers, the stock goes down. Using these numbers we can calculate the earnings per share or EPS, and the P/E Ratio which can be used to see the value of a company and the stock’s worth. In the income statement there’s Total Revenue, meaning all the money they received. Cost of Revenue means the cost it took to make that money. Gross Profit is the actual profits the company made. Then we have more expenses such as Research Development which is money spent on research and making new products. Selling General and Administrative is money spent on sales, administration, managers, etc. Subtracting the operating income from the profit from revenues, you have the real profit. Then the next expense are taxes, companies have to pay income taxes on their profits. On the bottom you have the actual net income the company has, meaning the company actually gets this much money for the period. To calculate the earnings per share, we divide the net income by all the shares of the company. For Apple they have 5 billion shares so 50 billion net income for the year divided by 5 billion is an EPS of $10. The P/E Ratio can be calculated by dividing the company’s price by the EPS, so $175 divided by $10 is 17.5, this is Apple’s P/E Ratio, which is how much per $1 of earnings we’re paying for the company. Knowing the basics of an income statement and P/E Ratio can help you determine if a company is worth buying in the stock market.