Reading an Income Statement

45-minute agenda

1. 0–5 min

   Warm-up

   Post: “A company's sales grew 20%, but its profit fell. What might have happened?”

   Teacher note: Costs grew faster than sales — for example, more expensive materials, discounts, or new hires.

2. 5–12 min

   Direct instruction

   Present the lesson slides. Make sure students leave with these points:

   • Income statement = performance over a period.
   • Revenue → gross profit → operating income → net income.
   • Compare periods: growth and margin trends matter most.
   • Real filings are free on the SEC's EDGAR site.

   Use the “See it” slide (Trailhead Outfitters: income statement for the year) to make the idea visual.

3. 12–17 min

   Worked example

   Walk through “What changed since last year?” on the slides. Pause before the result and ask students to predict it.

4. 17–22 min

   Live demo

   Project build an income statement from the slides or the Profit Margin Calculator. Change one input at a time and have students call out what they think will happen.

5. 22–34 min

   Line by Line

   Format: pairs · 12 minutes

   1. Post a two-year statement. Year 1: revenue $500,000, cost of goods $300,000, operating expenses $150,000, interest $5,000, taxes $9,000. Year 2: revenue $600,000, cost of goods $390,000, operating expenses $160,000, interest $6,000, taxes $8,800.
   2. Pairs calculate gross profit, operating income, and net income for each year.
   3. Pairs calculate revenue growth, gross margin, and net margin for each year.
   4. Pairs write two sentences: what improved, and what got worse?

   What to look for: Year 1: gross $200,000 (40%), operating $50,000, net $36,000 (7.2%). Year 2: gross $210,000 (35%), operating $50,000, net $35,200 (5.9%). Revenue grew 20%, but gross margin fell, so net income slipped.

6. 34–39 min

   Check for understanding

   Use the question slides — or run them as a Four Corners game. Answers:

   1. What time frame does an income statement cover? — C. A period of time, like a quarter or a year
   2. What's the most reasonable first question? — A. Which costs grew faster than revenue?
   3. What is net income? — B. $280,000
7. 39–42 min

   Discussion

   • Pick a public company you know. What would you want to learn from its income statement?
   • Why might a company's profit grow faster than its revenue?
8. 42–45 min

   Exit ticket

   Prompt: An income statement shows performance over a ___. A balance sheet shows a ___.

   Answer: period of time; snapshot on one date.