Income Statement Analysis: How to Read an Income Statement

Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling. The return-on-assets (ROA) ratio is applied to banks because the cash flow analysis is more difficult to construct. A variety of factors, including interest rates charged by the bank and the source of the bank’s assets, can have a substantial influence on the net interest margin. Because interest on such assets is a significant source of revenue for a bank, this statistic is a solid predictor of overall profitability, and greater margins usually imply a more profitable bank. Loans and services generate revenue for the retail banking business, as they do for the banking industry as a whole.

• A comparison of the line items indicates that Walmart did not spend anything on R&D and had higher SG&A and total operating expenses than Microsoft.
• An income statement is not a balance sheet or a cash flow statement.
• There is no gross profit subtotal, as the cost of sales is grouped with all other expenses, which include fulfillment, marketing, technology, content, general and administration (G&A), and other expenses.
• Retail banks and commercial banks traditionally function independently of investment banks, while the repeal of the Glass-Steagall Act now permits institutions to provide both commercial banking and investment banking services.
• Banks accept deposits from individuals and corporations and offer interest on selected accounts.
• If the bank delays transferring cash to a few clients for a day, other depositors may rush to withdraw their funds as they lose faith in the bank.

As I explained also in the last article, the bank pays customers interest on their deposits and it earns interest on the loans it extends to borrowers. The difference between the interest earned and interest expense is the net interest income or NII. At the bottom of the income statement, it’s clear the business realized a net income of $483.2 million during the reporting period.

General expenses

First, input historical data for any available time periods into the income statement template in Excel. Format historical data input using a specific format in order to be able to differentiate between hard-coded data and calculated data. As a reminder, a common method of formatting such data is to color any hard-coded input in blue while coloring calculated data or linking data in black. There is no gross profit subtotal, as the cost of sales is grouped with all other expenses, which include fulfillment, marketing, technology, content, general and administration (G&A), and other expenses.

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• For example, in ICICI Bank’s Rs. 90 bn operating expense, Rs. 38 bn is towards employees.
• It improves the review of a company’s consistency over time, as well as its growth compared to competitors.
• Then they lend a part of those deposits to other customers as loans at a higher interest rate.
• A transaction history displays all bank account transactions for a set period you choose.

As a result, mortgage demand will fall, as would any non-interest revenue, such as mortgage-related fees. As of 2021, banks with reserves of between $21.1 million ($16.9 million in 2020) income statement of a bank and $182.9 million ($127.5 million in 2020) must maintain a 3% reserve. Besides that, banks are subject to a slew of regulatory requirements, which alter the Reserve requirements.

Vertical Analysis

However, if your obligations exceed your assets, you may be on the verge of going out of business. In the following example, we will consider an interest rate spread for a major bank. A bank’s profit is influenced by the size of the spread, the Federal Reserve’s monetary policy, US Treasury yields, and other factors. Penalty Accounts” are defined as U.S. accounts valued over $50,000 that the parties agree should be subject to a penalty for the offense conduct. The Pictet Group was founded in 1805 and is a privately held Swiss financial institution headquartered in Geneva that has historically operated as a general partnership and, since 2014, as a corporate partnership.