Multi-Step Income Statement
An income statement format that separates operating and non-operating results into distinct subtotals for gross profit, operating income, and net income.
What is Multi-Step Income Statement?
A multi-step income statement is a financial reporting format that presents revenues and expenses in a structured sequence, calculating several intermediate subtotals before arriving at net income. The key subtotals are: (1) gross profit (revenue minus cost of goods sold), (2) operating income (gross profit minus operating expenses), and (3) net income (operating income plus non-operating items minus taxes). This format contrasts with the simpler single-step income statement, which lists all revenues together and all expenses together, computing net income in one calculation. The multi-step format is favored by analysts because it isolates core operating profitability from financial and tax items, making it easier to compare companies and assess operational efficiency. GAAP does not mandate a specific income statement format, but public companies almost universally use the multi-step approach.
Example
Microsoft's income statement shows: Revenue $245B → Cost of Revenue $74B → Gross Profit $171B (70% gross margin) → Operating Expenses $61B → Operating Income $110B → Other Income $3B → Pre-Tax Income $113B → Income Tax $17B → Net Income $96B. Each subtotal reveals a distinct layer of profitability.