628: How to Read an Income Statement, with Brian Feroldi

May 1, 2023

Brian Feroldi, a financial educator and author, shares his passion for simplifying finance and investment. He breaks down the essential components of an income statement, explaining how it reveals a company’s revenue, expenses, and profit. Listeners learn the significance of financial literacy for career growth and how to analyze key metrics like operating income. Feroldi also tackles the concepts of depreciation and amortization, making them accessible with relatable examples, empowering leaders to make informed financial decisions.

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ADVICE

Learn Financial Statements

Learn to read financial statements to enhance your business skills.
It's crucial for investors and entrepreneurs, but also beneficial for employees.

ANECDOTE

From Sales Rep to Financial Guru

Brian Feroldi, initially the lowest-ranked employee, learned accounting in his free time.
Sharing his financial notes with coworkers led to recognition from the CEO.

ADVICE

Target Companies with Stock Compensation

Target companies with high stock-based compensation.
Learn about their financials to understand potential investment returns as an employee.

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Brian Feroldi: Financial Statements Explained Simply

Brian Feroldi is a financial educator, YouTuber, and author. He has been intensely interested in money, personal finance, and investing ever since he graduated from college. His mission statement is to spread financial wellness. He loves to help other people do better with their money, especially their investments.

Brian has written more than 3,000 articles on stocks, investing, and personal finance for The Motley Fool. In 2022, Brian’s book Why Does The Stock Market Go Up? was published. The mission of the book is to demystify the stock market. It was written to explain how the market works in plain English. He’s also the co-creator of the course, Financial Statements Explained Simply.

Most of us are not accountants, but whether you work in a small business, a large corporation, a non-profit, or a government agency, the numbers define what resources that we have. Being able to understand and speak the language of financial statements is essential for leaders who want to influence decisions. In this episode, Brian and I review how to understand and read one of the most important reports for any organization: the income statement.

Key Points

A few hours of focus on the fundamentals of financial statement can provide you understanding and influence throughout your career.
An income statement (also called a profit and loss statement or P&L) shows revenue, expenses, and profit over a period of time. It’s similar to your personal budget.
Revenue minus cost of goods sold is gross profit.
Subtracting operation expenses from gross profit give you an organization’s operating income or EBIT (earnings before income and taxes).
Depreciation spreads out the cost of tangible assets (equipment, vehicles, buildings) their useful lives. Amortization does the same thing for intangible assets (loans, copyrights, patents).
The “bottom line” is literally the bottom line at the end, either net income or net loss.

Resources Mentioned

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