IT Managers Need To Make Friends With The Company’s Income Statement

by drjim on October 4, 2012

Image Credit Income statements show the results of the company's operations over time

Income statements show the results of the company's operations over time

So IT manager, how is your company doing? Are they going to be able to fund your IT dream team’s projects this year? Will there be any money left over for your management to hand out as bonuses to your IT team in order to make sure that they stay on board and don’t bail? The best way to find out how your company is doing is to show some leadership and take a look at its income statement. Let’s make sure that you know how to read it.

The Income Statement

Say hello to an IT manager’s new best friend: the Income Statement. An income statement shows the results of your company’s operations over a specified period of time. This is an important point: the balance sheet provides a snapshot of the company’s status at a given point in time. However, the income statement shows the company’s results within a defined period of time. This period is generally at the end of a month, a quarter, or at the end of the year.

So what does an income statement show? It shows you if your company is making a profit – if the revenue that it is taking in is greater than its costs and expenses. This is why the income statement is sometimes referred to as the “Profit and Loss Statement” or more simply the “P&L “.

Since the income statement tells you if your company was profitable at the end of a period, this allows you to answer other questions also. From the information contained in a balance sheet you’ll be able to determine how much money your company had to spend in order to make the profit that it made. This means that you’ll be able to calculate the company’s profit margin.

How To Make Sense Of The Income Statement

The income statement’s contents can be represented by a simple equation:

Revenues – Expenses = Net Income (or Net Loss)

The company’s revenues represents the money that the company has made from selling products or services to customers. The various costs and expenses that the company incurred in generating these revenues are then deducted from its revenues. What is left over is called the net income.

When taking a look at a company’s income statement, it is most helpful if you do it in a multiperiod format. Only by doing it this way will you be able to spot trends and turnarounds.

What All Of This Means For You

Every publically traded company (and a number of private firms) creates an income statement. This statement shows the results of the company’s operations over some period of time.

IT managers need to know how to read an income statement in order to be able to understand how their company is doing. The income statement shows the company’s revenues as well as its costs and expenses. Taken together, the company’s net income can be determined.

A company’s ability to keep its doors open has a lot to do with how much money it is making. In order to fund IT programs and provide an IT team with the funding that they’ll need in order to both start and complete projects, a company needs to have enough net income. IT managers who are able to determine the company’s fiscal health using its income statement will be able to determine how best to guide their IT teams.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Management Skills™

Question For You: What should an IT manager do if they see that the company is no longer generating any net income?

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What We’ll Be Talking About Next Time

Who likes to hear success stories all the time? I’m working with a new IT manager who only recently started her new leadership position. An important point to understand here is that this is not her first management position; she had been responsible for a small team in the past. This new assignment is her first time running a team of this size (roughly 100 IT employees). However, her efforts are not working. What’s going wrong here?

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