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All of us have a vested interest in the company's financial results and a desire to understand them better. In this blog post I provide a very high-level overview for non-financial employees.

What do all of the figures discussed during the earnings call really mean? Let's start with the income statement. The income statement is a depiction of the company's earnings or losses for a given period, and is the basic measuring stick of profitability.

The first and often most discussed item on the income statement is revenue. In the simplest terms, revenue is the amount of sales from our products and services, whether that's Windows Server, Windows Vista, Office, Xbox, MSN, or other products. In the software world, measuring whether or not revenue is earned can be complex. If the revenue is not yet "earned" because significant value will be delivered after the sale, then it will flow through the income statement in years to come. Since the amount of unearned revenue can be an important component of future revenue and profitability, we sometimes discuss the growth in this amount during the quarter.

Another important measure is operating income which assesses whether or not the foundation of the company is profitable. Operating income is revenue minus operating expenses (cost of revenue, research and development, sales and marketing, and general and administrative expenses). A factor to consider is the rate of revenue growth versus the rate of operating income growth. We strive to have operating income growth equal or exceed the rate of revenue growth, which implies that we are increasing the operating efficiency with which we are delivering software and services to our customers – in short, we are becoming more profitable.

Finally, earnings per share (EPS) is a convenient way to compare companies and often is the bottom-line factor investors first consider. EPS represents the net income divided by the number of outstanding shares of stock. Net income is operating income plus investment income, other nonoperating income or expenses, and includes the impact of interest and taxes. EPS is also positively impacted by stock buybacks, which reduce the number of outstanding shares.

Once you understand the basics of the income statement, you can listen for the business drivers behind the results. These drivers are discussed at a detailed level for each major business group. For example, has revenue increased because we launched a new product? Did the balance of unearned revenue grow during the quarter? Have acquisitions driven our growth? How is the PC market growth driving our business results? What's the impact of any legal charges to our operating expenses? Were there special or one-time events that change our earnings during the quarter? Did foreign currency movements impact our results? How well did core products grow? Did adoption of new products meet expectations?

I encourage all employees to take the time to understand the core drivers of our business, listen in to our earnings call, and become familiar with what drives shareholder value. For a quick summary of how I saw the quarter, watch my recent comments at http://StreetTalk.

I hope you find this useful. If there are other financial terms or concepts that you'd like to hear more about, please send me your comments via http://StreetTalk or this blog. Remember as employees, our commitment and passion directly drive Microsoft's results and earnings and increase our long-term shareholder value.