| name | income-statement-analysis |
| description | Analyze income statements (P&L statements) to assess company financial performance. Use when evaluating revenue quality, margins (gross, operating, net), expense structure, profitability trends, or comparing financial performance against competitors. Triggers on income statement analysis, P&L review, margin analysis, revenue analysis, expense breakdown, or financial statement evaluation. |
Income Statement Analysis
Structured approach to analyzing a company's income statement based on the App Economy Insights methodology.
Analysis Workflow
1. Gather the Data
Obtain the income statement data:
- Quarterly (10-Q) or Annual (10-K) filings
- Multiple periods for trend analysis (minimum 4 quarters or 2-3 years)
- Competitor data for benchmarking
2. Analyze Revenue (Top Line)
Evaluate revenue quality:
- Recurring vs non-recurring: Does the company start fresh each year?
- Growth consistency: Sustainable patterns or volatile?
- Temporary factors: Identify tailwinds/headwinds affecting the period
3. Calculate Key Margins
Gross Margin = (Revenue - COGS) / Revenue
Operating Margin = Operating Income / Revenue
Net Margin = Net Income / Revenue
EPS = Net Income / Outstanding Shares
For formulas and benchmarks: See references/metrics-formulas.md
4. Assess Operating Expenses
Break down OPEX as percentage of revenue:
- S&M %: Sales efficiency (declining = good operating leverage)
- R&D %: Innovation investment level
- G&A %: Administrative overhead
- D&A: Capital intensity indicator
5. Compare Across Time
Look for these signals over multiple periods:
- Revenue growth vs peers (market share)
- Gross margin stability (unit economics)
- Operating margin improvement (operating leverage)
- S&M efficiency gains (scalability)
6. Benchmark Against Competitors
Compare metrics to direct competitors in same industry. Context matters—Amazon's 2% operating margin is excellent for retail, weak for software.
7. Evaluate GAAP vs Non-GAAP
If company reports adjusted metrics:
- Identify what's excluded
- Question stock-based compensation exclusions
- GAAP metrics are the only ones that matter long-term
For complete checklist: See references/analysis-framework.md
Output Structure
Present analysis as:
- Revenue Assessment: Quality, growth, sustainability
- Margin Analysis: Gross → Operating → Net with trends
- Expense Efficiency: OPEX breakdown and trends
- Competitive Position: vs peers
- Key Risks/Red Flags: Any concerns identified
- Summary: Overall financial health assessment