Analyzing Income Statements
2025 Curriculum
CFA® Program Level I
Financial Reporting and Analysis
Refresher reading access
Introduction
Income statements and analytical measures derived from them, such as sales growth, operating margin, and earnings per share (EPS), are critical for equity and credit analysis. Investors analyze income statements to evaluate companies’ growth, profitability, and risks, and often use income statement figures in valuation. Corporate financial announcements frequently emphasize information reported in income statements, particularly earnings, more than information reported in the other financial statements.
Learning Outcomes
The candidate should be able to:
- describe general principles of revenue recognition, specific revenue recognition applications, and implications of revenue recognition choices for financial analysis
- describe general principles of expense recognition, specific expense recognition applications, implications of expense recognition choices for financial analysis and contrast costs that are capitalized versus those that are expensed in the period in which they are incurred
- describe the financial reporting treatment and analysis of non-recurring items (including discontinued operations, unusual or infrequent items) and changes in accounting policies
- describe how earnings per share is calculated and calculate and interpret a company’s basic and diluted earnings per share for companies with simple and complex capital structures including those with antidilutive securities
- evaluate a company’s financial performance using common-size income statements and financial ratios based on the income statement
1.75 PL Credit
If you are a CFA Institute member don’t forget to record Professional Learning (PL) credit from reading this article.