Unlocking the full potential of your SME’s income statement requires going beyond the surface figures and exploring the nuances that reveal hidden opportunities for growth and optimisation. This blog covers insights that small and medium enterprises (SMEs) often overlook.

Revenue and expenses serve as pivotal indicators of a company’s financial health, offering profound insights into its operational efficiency and strategic direction. Central to this analysis is examining the potential and growth within the total revenue generation and expenditure patterns, which directly influence the company’s profit and loss margins. By meticulously scrutinise these facets, businesses can identify areas ripe for improvement and optimisation 

According to the World Economic Forum Global Competitiveness Report, access to financing remains a significant challenge for SMEs worldwide. Despite being the backbone of economics, SMEs often need help to secure funding for growth and expansion. This challenge is particularly acute in emerging markets, where regulatory constraints and limited access to capital inhibit SMEs development, Creating close to 70% of jobs and GDP worldwide.  

Furthermore, the World Economic Forum Future of Job report highlights the importance of financial literacy and digital skills for SME success in the digital age; as technology continues to reshape the business landscape, SMEs must adapt to new digital tools and platforms to adjust to remain competitive. The future of financial management by investing in Digital infrastructure and upskilling their workforce, with the help of Pulse, SMEs can unlock new opportunities for growth and innovation.  

Unveiling hidden gems in your SME’s income statement can be an exciting yet crucial endeavour for optimising your financial performance. Pulse can play a pivotal role in this process, enhancing your financial management capabilities by providing real-time insights and facilitating proactive decision-making.  

Before examining an income statement, it is crucial to distinguish between common and uncommon metrics. While revenue, cost of goods sold (COGS), and net income are the mainstays of any income statement analysis, the real insights often lie in the less familiar indicators. Understanding these uncommon metrics can provide a deeper understanding of your company’s financial health and lead to strategic improvements. 

Gross Margin Percentage: While gross profit (Why it Matters for Business) might be a familiar term, the gross margin percentage is calculated by dividing gross profit by revenue, offering more sophisticated insight for businesses to track production efficiency over time. A high gross margin indicates that a company retains a significant portion of its revenue after accounting for the direct cost associated with the company. For example, imagine a manufacturing business that produces popular products after deducting the direct expense incurred in the manufacturing process, such as the cost of raw materials, labour, and manufacturing overhead. The business retains a sizable portion of its income. This remaining income reflects the business’s profit, and once essential costs related to production are accounted for.  

For instance, let’s say the business manufactures smartphones. The direct expenses include the costs of components like the screen, battery, processor, and other materials, the wages of factory workers, and the fees associated with operating the manufacturing facility. The business is left with substantial income once these costs are subtracted from the total revenue generated by selling smartphones. 

The business then allocates this income towards various purposes, such as investment in the industry for expansion or improvement, distribution to shareholders as dividends, building up cash reserves for future endeavours, or paying off debts. Retaining a sizable income after covering direct expenses indicates the efficiency and profitability of the business in its manufacturing operations. 

Operating Margin: Operating margin is also called return on sales. It is calculated by dividing operating income by revenue, which factors in all operating expenses, providing a clear picture of a company’s operational efficiency. It reflects the portion of revenue that remains after covering both COGS and operating expenses. The percentage of revenue remains after operational, and COGS costs are paid. 

Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA): EBITDA is a loose proxy for cash flow that strips away non-operating expenses such as interest, taxes, depreciation, and amortisation. It is also dependent on the company’s capital structure. EBITDA provides a complete picture of how profitable a business is based on its core activities, and this metric is handy for comparing a company’s performance within the same industry. EBITDA can be calculated in different ways and is extensively used in valuation. It considers costs such as wages, overheads, and materials but does not include non-operating expenses. 

Return on Assets (ROA): ROA is a financial ratio that measures a company’s ability to generate profits from its assets. It is calculated by dividing net income by the average of total assets. A high ROA indicates efficient asset utilisation, while a low ROA may signal underperformance or excessive asset investment relative to earnings. 

Return on Equity (ROE): ROE is measured as a company’s annual return. It evaluates a company’s profitability relative to shareholders’ equity. It is calculated by dividing net income by the average shareholder’s equity. ROE highlights how effectively a company uses shareholder funds to generate profits. ROE is a powerful metric that bridges income and the balance sheet, combining net income or profit with shareholder’s equity. It reflects the company’s ability to convert equity investment into earnings. ROE indicates efficiency in generating profits for all pound shareholders invest, encapsulating the total return on capital. 

Case Studies: Unveiling the Impact of Company Metrics 

To illustrate the significance of these metrics, let us consider a hypothetical scenario involving two SMEs operating in the retail sector: Company A and Company B. 

Company A: Boasts a higher gross margin percentage compared to Company B, indicating superior efficiency in its production processes or pricing strategies. Company A’s higher gross margin suggests better cost management despite similar revenue figures, potentially translating into higher profitability or room for strategic investments. 

Company B: Conversely, it exhibits a more robust operating margin despite lower gross margins. This suggests that while Company B may incur higher production costs, it excels in managing its operating expenses. By scrutinising its cost structure further, Company B may uncover areas for optimisation, leading to enhanced profitability and a competitive edge. 

Examining EBITDA, Company A demonstrates a healthier margin than Company B, indicating superior operational performance after accounting for non-operating expenses. This insight may prompt Company B to re-evaluate its cost structure and streamline operations to boost EBITDA margin and overall profitability. 

ROA and ROE shed light on each company’s assets and equity utilisation. With a higher ROA and ROE, Company A effectively leverages its resources to generate profits and returns for shareholders. In contrast, Company B may need to reassess its asset allocation or capital structure to improve returns and shareholder value. 

Practical Tips for Implementation 

Now that we have explored the impact of these metrics, how can SMEs like yours harness these insights to drive strategic decision-making? Here are some practical tips: 

Conduct Regular Performance Reviews: Analyse your income statement using common and uncommon metrics to track performance trends. Conduct a SWOT analysis of your company, allowing for proactive adjustments to business strategies. 

Benchmark Against Your Competitors: Compare your financial metrics against industry benchmarks to gauge competitiveness and identify areas for improvement. Some tools provide access to industry-specific data, enabling SMEs to effortlessly benchmark their performance against peers. At Pulse, we are working behind the scenes to launch our benchmarking feature soon, so keep your eyes peeled! 

Embrace Technology: Leverage your financial management software or platforms to automate data analysis and gain real-time insights into your business performance. These tools can streamline the financial reporting process and empower SMEs to make data-driven decisions confidently. 

Seek Professional Guidance: Feel free to seek advice from financial experts or consultants, especially when interpreting complex financial metrics. A fresh perspective can uncover blind spots and reveal untapped growth opportunities. 

By incorporating these tips into financial strategies, SMEs can harness the power of hidden gems within their income statements to drive sustainable growth and success. 

Utilising Pulse for financial insight is a game-changer. Our realtime data analytics capabilities enable proactive decision-making and an agile response to market changes. With Pulse, you will soon be able to create forecasts to accurately project future financial performance, this enables better resource allocation and risk management.


In the fast-paced world of business, SMEs must recognise the wealth of insights concealed within their income statements and organisation in general by delving into the depth of your SMEs income statement and harnessing the power of advanced analytic tools like Pulse. Sign up to Pulse today you can enact sustainable growth and profitability. Embrace the proactive approach to financial management, continuously refining your strategies based on data-driven insights to stay ahead in today’s dynamic business landscape. 

Beyond the basics of revenue and expenses, key metrics offer a deeper understanding and actionable insights into your company’s financial performance. By embracing these insights and implementing them into their economic strategies, SMEs can unlock new avenues for growth, optimise resource allocation, and confidently navigate challenges in an ever-evolving marketplace.