The income statement (DRE)

The income statement — the DRE in Brazil — measures performance over a period (a quarter or a year). It starts at the top with sales and subtracts costs line by line down to profit.

The waterfall

Revenue (receita liquida)              1,000
- Cost of goods sold (CMV/custos)      - 600
= Gross profit (lucro bruto)             400
- Operating expenses (despesas op.)    - 150
= Operating profit (EBIT / lucro op.)    250
- Interest (despesas financeiras)       - 30
= Pre-tax profit (lucro antes IR)        220
- Taxes (IR e CSLL)                      - 70
= Net income (lucro liquido)             150

Reading each line

• Revenue (receita) — total sales. The top line; growth here is the first thing analysts check.
• Gross profit — what is left after the direct cost of producing the goods. Gross margin = 400 / 1,000 = 40%.
• Operating profit (EBIT) — profit from the core business, before financing and tax. It isolates how good the operation itself is.
• Net income (lucro liquido) — the bottom line, what belongs to shareholders. Net margin = 150 / 1,000 = 15%.

Earnings per share

Divide net income by shares outstanding. With 100 shares: EPS = 150 / 100 = 1.50. EPS feeds directly into the P/E ratio. Always check whether a profit jump came from real sales growth or a one-off item (an asset sale, a tax credit) that will not repeat.