A multiple-step income statement reports multiple levels of

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Anu Bhardwaj · Accepted Answer

Levels of Profitability

Unlike a single-step income statement that only shows one calculation for net income, a multiple-step statement provides a more detailed view of a company's earnings by separating operating revenues and expenses from non-operating ones. This allows for the calculation of different profit figures, each providing specific insights into the business's performance. The main levels of profitability reported are:

Gross Profit: This is the first level and is calculated by subtracting the cost of goods sold (COGS) from net sales revenue. It shows the profitability of a company's core products or services before considering any other expenses.
- Gross Profit = Net Sales - Cost of Goods Sold
Operating Income (or Operating Profit): This is the second major level. It's calculated by subtracting operating expenses (such as selling, general, and administrative expenses) from gross profit. Operating income indicates how much profit a company generates from its main business operations, excluding any non-operating activities.
- Operating Income = Gross Profit - Operating Expenses
Net Income: This is the final level of profitability. It is calculated by taking operating income and adding or subtracting all non-operating items, such as interest income, interest expense, and gains or losses from the sale of assets. Net income represents the company's total profit for the period after all expenses and revenues have been accounted for.
- Net Income = Operating Income $\pm$ Non-operating Items

Accounting

Accounting

Anu Bhardwaj

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