It’s a hot day and you want to jump in the water. But how deep is it? You can’t see the bottom so you have to rely on how many feet deep it is. A sign nearby says the average dept is 8 feet. So do you feel comfortable enough to dive in? You probably don’t.

Yet, ironically, how many people operate that way with their business? When you look at their income statement, their reporting package gives them a one line margin number. Rather than knowing if they have shallow or deep margins in a product line or service line, they operate with just one number and dive right in.

Consider the following simplified example:

Product Revenues
Service Revenues
=Total Revenues

Material Costs
Labor Costs
Overhead Costs
=Total Costs of Revenues

Total Gross Margin (Revenues - Costs of Revenues)

Is the company making more money on products or services? Unfortunately, you can’t tell from the income statement.

That is pretty key information to be missing.

Unfortunately, one line margins statements don’t let you get deep enough for these types of decisions.

Margins are one of the most telling numbers in the financial statements. It deserves more than one line. Change your reporting structure and package so you get the key breakouts right on your income statement.