Multi Step Income Statement

Financial statements are documents or reports which have been systematically maintained to indicate the financial health of a company.

There are four types of financial statements: balance sheet, income statements, statement of retained earnings, and cash flow statements or reports.

Types of Income Statement:

Income statements can be of two types:

• Single step financial statement: It is made by grouping all revenues together. The total expenditure is also grouped together.
• Multiple step financial statement: A multiple step financial statement separates interest expenses and interest income. A retail or manufacturing company may show their financial activities in a multiple step financial statement. When this report is seen by creditors or investors, it gives them an idea of the percentage of gross margin for every dollar of commodity sold.

Multiple Step Financial Statement - Profitability Measures:

In the case of a multiple step financial statement, there are four profitability measures. These four measures are highlighted at different stages of the company's operational activities. They are:

• Gross
• Operating
• Pretax
• After Tax

Elements of Multiple Step Financial Statement:

A multiple step financial statement has the following fields:

• Sales revenue
• Cost of sales
• Gross margin
• Other expenditure
• Net income generated from operational activities
• Interest revenue
• Interest expense
• Net income

Understanding the different terms mentioned in the fields of the multiple step financial statement:

• Sales revenue: is referred to the total value of goods as well as service sold to its clients.
• Cost of sales: is the expenditure, which a manufacturer has to bear as labor charges, raw material charges and manufacturing overhead in producing goods.
• Gross margin: Gross margin, also known as gross profit or gross income, covers associated expenses of the company. It can be referred to as miscellaneous expenditure, which the company incurs at different stages of production.
• Interest expense: indicates how much a company has borrowed.
• Net income: indicates the profitability of a company.