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Revenue to Net Income, step by step
The income statement is a waterfall. Revenue at the top — every dollar customers paid for the company's products or services. Each line below it subtracts a layer of cost — what it took to make the product, what it cost to run the company, what creditors and the IRS took, and finally what's left for shareholders. The waterfall doesn't just count profit; it tells you what kind of business you're looking at. The shape of the cascade — how much falls off at each step — is the difference between a high-margin software franchise and a low-margin grocery chain.
From the top to the bottom, the income statement subtracts five categories of cost. is what it took to make the product. (often broken into R&D and SG&A) are what it took to run the business. is what was paid to lenders. are what was paid to governments. What's left after all five subtractions is , the bottom line, which divided by share count gives earnings per share.
The three margins are gross, operating, and net — each computed by dividing the relevant profit line by revenue. measures pricing power and product economics. SaaS companies often have 75-85% gross margins because their marginal cost is near zero. Grocery chains run 25-30%. Software has structural advantages a grocer cannot replicate. measures the entire business operation. measures what's left for shareholders, including financing and tax effects. The three margins together let you triangulate where a company makes its money — and where it bleeds it.
Apple's FY2024 income statement walks down to roughly: ~$391B revenue, ~$181B gross profit (~46% gross margin), ~$123B operating income (~31% operating margin), ~$94B net income (~24% net margin). NVIDIA's FY2024 income statement, by contrast, walks down with structurally even higher margins: gross margin around 75%, operating margin around 60%, net margin around 55%. Same currency, same accounting framework — radically different business economics. Looking at the three margins side by side immediately tells you NVIDIA has stronger underlying economics than Apple, even though both are hugely profitable. Looking at margin TRENDS over five years tells you even more: a company expanding margins 200 basis points per year is improving operationally; a company contracting margins is losing pricing power or absorbing rising costs.
Companies report two earnings numbers: (the rule-bound, audited number) and (an adjusted number management defines). Common adjustments: excluding stock-based compensation (which IS a real cost — dilution is real), excluding restructuring charges (which often recur for years), excluding amortization of acquired intangibles. The bigger the gap between GAAP and non-GAAP, the more careful you need to be. Some companies report non-GAAP earnings 30-50% higher than GAAP because they exclude SBC. The honest analyst defaults to GAAP, looks at the SBC line as a real cost, and treats 'one-time' charges that recur for four years in a row as ordinary operating expenses.
Follow the money from revenue to net income. Each bar is what's left after subtracting the next layer. The shape of the waterfall — how much survives each cut — is the structural fingerprint of the business.
NVIDIA's actual income statement — the same format the Financial Statements tab shows for any ticker. Note the dramatically higher margins than Apple, the structural advantage of selling near-monopoly AI silicon at near-zero marginal cost.
Margins differ structurally by industry. Software has the highest because the marginal cost of a copy is near zero. Airlines have the lowest because every flight burns expensive fuel and labor with limited pricing power.
| Industry | Typical gross | Typical operating | Typical net |
|---|---|---|---|
| SaaS / Software | 75-85% | 25-40% | 20-35% |
| Big tech (AAPL, MSFT) | 40-70% | 30-45% | 25-35% |
| Pharma / biotech | 65-80% | 20-30% | 15-25% |
| Consumer staples (KO, PG) | 40-55% | 20-30% | 12-22% |
| Industrial / capital goods | 30-40% | 12-20% | 8-15% |
| Airlines | 20-30% | 5-12% | 3-8% |
| Grocery / discount retail | 20-30% | 2-5% | 1-3% |
The Financial Statements tab shows the full income statement with 10-year history per line item. The Ratios tab computes all three margins automatically and plots them over time so you can see whether they're expanding or contracting. The KPIs tab tracks per-segment revenue (Apple's iPhone vs Services vs Wearables) so you can see which parts of the business are growing margin and which are eroding. Every income statement on the platform comes from the company's most recent 10-K/10-Q on SEC EDGAR — same numbers, same definitions, just easier to compare across tickers.
Be skeptical of any company that emphasizes 'adjusted operating margin' or 'core profitability' instead of GAAP operating margin. The standard adjustments — excluding SBC, restructuring charges, amortization of acquired intangibles, 'one-time' impairments — can take a 5% GAAP margin and turn it into a 25% non-GAAP margin. The dilution from SBC is real; the restructuring charge that recurred for four years in a row is not one-time; the amortization is the cost of an acquisition that already happened. Margin trends matter more than levels — watch the trajectory over 5-10 years. A 15% margin expanding 200bps per year is a far better business than a 30% margin contracting 100bps per year, even at the same starting net income.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.