Q. Analyzing how well the company is performing?
The classified income statement illustrates important relationships that help in analyzing how well the company is performing. For instance by deducting cost of goods sold from operating revenues you are able to determine by what amount sales revenues exceed the cost of items being sold. If this margin called gross margin is lower than desired a company may requires increasing its selling prices and/or decreasing its cost of goods sold. The classified income statement subdivides operating expenses into administrative and selling expenses. Therefore statement users are able to see how much expense is incurred in selling the product and how much in administering the business. Statement users can as well make comparisons with other years' data for the same business and with other businesses. Non operating revenues as well as expenses appear at the bottom of the income statement because they are less significant in assessing the profitability of the business.