CFA Level I · CFA Level I Exam · Analyzing Income Statements
Under IFRS, a company's income statement reports revenue of 500, cost of sales of 300, operating expenses of 120 and interest expense of 20. The subtotal of revenue minus cost of sales is best described as:
Revenue minus cost of sales is gross profit, which here equals 200. Operating profit would deduct operating expenses as well, and profit before tax would deduct financing costs such as interest, so neither describes this first subtotal.
- Aoperating profit.
- Bgross profit.Correct
- Cprofit before tax.
Explanation
Revenue less cost of sales (500 - 300 = 200) is gross profit. Operating profit would also deduct operating expenses (200 - 120 = 80), and profit before tax would also deduct interest expense.
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