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Step through
Revenue (top line) = total sales before any costs are subtracted.
Gross Profit = Revenue minus Cost of Goods Sold. How much the core product earns before overhead.
Operating Income = Gross Profit minus operating expenses (rent, salaries, R&D). The true earning power.
Net Income (bottom line) = what remains after ALL costs, interest, and taxes. The profit for shareholders.
Formula
Net Margin = Net Income / Revenue
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Key insight
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Key point
Going Deeper — the income statement, the balance sheet, and the cash flow statement all move together. If a company sells $100M of product but customers pay 90 days later, the income statement books $100M of revenue, the balance sheet adds $100M to accounts receivable, and the cash flow statement subtracts $100M from operating cash flow under "changes in working capital" — so operating cash flow is unaffected by the sale until customers pay. If the customer never pays and the receivable is written off eighteen months later, the income statement takes a bad-debt expense for $100M and the balance sheet removes the $100M receivable — but the cash flow statement is untouched, because no cash ever changed hands. Walking three statements through any single transaction is the cleanest test of whether you actually understand them. AI prompt: "Walk me through the three statements when this company books a $20M sale on credit, then writes it off as bad debt eighteen months later."
Sit with the ideas.
A company has $10B revenue and $2B net income. What is its net profit margin?
Buy after reading one balance sheet
Pull up a 10-K for a company you own (or want to own). Read just the balance sheet. Note three things: total cash, total debt, and shareholders' equity. Then paper-buy 5 shares and journal whether the balance sheet made you more or less confident.
Open paper portfolio →Practice mode — simulated trades, not investment advice.