Multi-Step Income Statement: Multi-Step Analysis for Decision-Making

The components of the multi-step income statement comprise three equations that calculate a profit metric that each measures a unique attribute of the underlying company’s financial performance. The detailed breakdown of revenues and expenses demands a thorough analysis, so preparing a multi-step income statement becomes more time-consuming compared to a single-step income statement. The cost of goods sold is separated from the operating expenses and listed in the gross margin section.

• The Multi-Step Income Statement is very efficient when analyzing a company’s performance.
• For example, by deducting COGS from operating revenues, you can determine by what amount sales revenues exceed the COGS.
• The Multi-Step Income Statement is a useful multi-step financial statement.
• The detailed breakdown of revenues and expenses demands a thorough analysis, so preparing a multi-step income statement becomes more time-consuming compared to a single-step income statement.
• Many operating expenses will be grouped into one line to simplify calculations.
• However, if your business is in a growth stage, or you’re looking to obtain a bank loan or attract investors, a multi-step income statement provides details that are missing from the single-step income statement.

The final figure shows the net income (or net loss) of the business for the reporting period. Multi-step income statements, on the other hand, multi-step income statements compute net income using many equations. They compute gross profit and operating income, which are how to prepare a multi step income statement not reflected on a single-step income statement. The multi-step income statement shows a company’s profits and losses throughout a given reporting period. An income statement is a financial report detailing a company’s income and expenses over a reporting period.

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The third and final component of the multi-step income statement is net income (the “bottom line”), which represents the net profitability of a company per accrual accounting standards. If you prepare the income statement for your entire organization, this should include revenue from all lines of business. If you prepare the income statement for a particular business line or segment, you should limit revenue to products or services that fall under that umbrella. Your reporting period is the specific timeframe the income statement covers. The multi-step income statement’s ability to focus on operating and non-operating activities separately distinguishes it from the single-step income statement. For example, for businesses operating in the ecommerce space, Synder emerges as a specialized accounting solution.

Investors use gross profit to evaluate the profitability of core business operations and the company’s overall health. Taking our example from CBS, net sales equaled $293,500 and cost of goods sold equaled $180,000. Therefore, the Gross Profit Margin Ratio is computed as 0.39 (rounded to the nearest hundredth).

Step 8. Calculate other revenue and expenses

This means that CBS has a margin of 39% to cover operating expenses and profit. The Multi-Step Income Statement is a useful multi-step financial statement. It can be used to analyze company performance and allow for a more detailed analysis compared to a single-step income statement. It makes it easier to report complex information while being more comprehensive than single-step statements. Multi-level income statements are also often produced in compliance with some laws and regulations.

A Multi-Step Income Statement can be used to analyze company performance and allow for a more detailed analysis compared to a single-step income statement. Income taxes are paid by the company on its taxable income, which is calculated by subtracting deductions (such as business expenses, interest payments, and donations) from revenue. If you’re a sole proprietor or independent contractor, you can certainly get by using a single-step income statement. But for established businesses as well as businesses looking to apply for a loan or attract investors, a multi-step income statement is worth the extra steps. When calculating operating expenses, don’t include any expenses already included in the cost of goods sold, such as direct labor and materials purchased. The next step when preparing a multi-step income statement is to calculate the cost of goods sold.

Steps to Prepare an Income Statement

Finance Strategists is a leading financial education organization that connects people with financial professionals, priding itself on providing accurate and reliable financial information to millions of readers each year. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. The Multi-Step Income Statement is very efficient when analyzing a company’s performance. On the other hand, Single-Step Income Statements are typically used when there is only one product or service available. It can be used to break down expenses by department or object, however, Multi-Step Income Statements are more commonly used.

Here, we separate operating expenses and operating revenues from non-operating expenses and non-operating revenues separately in different steps. A multi-step income statement will use multiple equations to determine the final net income figure. A multi-step income statement will use three formulas to determine the final net income figure. We will discuss the formula for the same in the following topic of this article.