Gross profit margin

“Gross profit margin is a financial metric used to assess a company’s financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). Gross profit margin, also known as gross margin, is calculated by dividing gross profit by revenues.”


The Income Statement

The profit and loss statement, commonly referred to as the income statement, is one of three financial statements every public company issues quarterly and annually, along with the balance sheet and the cash flow statement. The income statement, like the cash flow statement, shows changes in accounts over a set period of time. The balance sheet, on the other hand, is a snapshot, showing what is owned and owed at a single moment. It is important to compare the income statement with the cash flow statement, since under the accrual method of accounting, revenues and expenses can be logged before cash actually changes hands.

Generally Accepted Accounting Principles (GAAP)

Generally accepted accounting principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.

Read more: Generally Accepted Accounting Principles (GAAP)

Revenue manipulation

“Revenue is usually the largest amount in the statement of profit or loss so it is important that it is correctly stated. US studies have shown that over half of all financial statement frauds and requirements for restatements of previously published financial information involved revenue manipulation.”

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