Learn the stock market › Fundamental analysis: the basics › Lesson 3 of 8
How does a company make money?
A real income statement
Costco runs warehouse stores that sell groceries and household goods to paying members. Here is its income statement for the year that ended in August 2026, from top to bottom.
| $ million | Aug 2026 | Of revenue |
|---|---|---|
| Revenue | 303,154 | 100.0% |
| Cost of goods sold | −264,279 | 87.2% |
| Gross profit | 38,875 | 12.8% |
| Other operating costs | −27,190 | 9.0% |
| Operating income | 11,685 | 3.9% |
| Interest and other | 566 | 0.2% |
| Income before tax | 12,251 | 4.0% |
| Tax | −3,025 | 1.0% |
| Profit after tax | 9,226 | 3.0% |
Line by line
Revenue is everything the company sold during the year. It is also called sales. It tells you how big the company is, not how profitable.
Cost of goods sold is what the company paid for what it sold. What is left is gross profit, here 13% of revenue.
Other operating costs are things like staff, stores, marketing and administration. Many of them stay even if one particular item doesn't sell.
Operating income shows what the business itself produced, before loans and tax. That makes it easier to compare companies that have borrowed different amounts.
Interest and other is mainly what loans cost, minus interest earned on the company's own money. It can be a plus, as when a company holds a lot of cash.
Profit after tax is the bottom line. It is the part the owners can share in, as dividends or through a growing company. Per share, it is called earnings per share.
Big sales aren't big profits
Two companies with the same revenue can earn very different amounts. A retailer often makes little on each item and sells a lot, while a software company can keep far more of the same revenue. That is why profit is compared as a share of revenue, and the last lesson shows such margins over several years.
Profit isn't the same as money in the bank either. The lesson on cash flow covers that. How the income statement looks in a quarterly report is in the lesson on the income statement.
Test yourself
A company sells $100 of goods. The goods cost $60, other costs are $25, and interest and tax come to $5. What is the profit?
The latest numbers are on the Costco stock page.