What is an income statement waterfall?

An income statement waterfall is a bar chart that walks from total revenue down to net income, with each step showing how much a cost or tax line removes (or adds). Subtotals — gross profit, operating income, pre-tax income — are anchored to zero so the cascade reconciles exactly to the bottom line.

How much of Palo Alto Networks (PANW) revenue becomes net income?

For TTM through Q2 2026, Palo Alto Networks turned $10.6B of revenue into $843M of net income — a net margin of 7.9%. The waterfall shows where the rest goes: cost of revenue, operating expenses, non-operating items, and taxes.

What are Palo Alto Networks (PANW) gross, operating, and net margins?

For TTM through Q2 2026, Palo Alto Networks reported a gross margin of 71.9%, an operating margin of 9.6%, and a net margin of 7.9%. Each subtotal in the waterfall corresponds to one of these margins.

Why does Palo Alto Networks (PANW) have such a high (or low) gross margin?

Gross margin (gross profit ÷ revenue) reflects how much of each revenue dollar remains after direct production costs. Capital-light software and platform businesses often show gross margins above 60–80% because their cost of revenue is mainly hosting and support. Hardware, retail, and commodity businesses show lower gross margins because raw materials and manufacturing costs are significant. The waterfall makes this visible at a glance — the size of the "Cost of Revenue" bar relative to Revenue is the gross margin complement.

What is the difference between gross, operating, and net margin?

Gross margin = (Revenue − Cost of Revenue) ÷ Revenue. It measures production efficiency. Operating margin = Operating Income ÷ Revenue. It adds operating expenses (R&D, S&M, G&A) and measures the profitability of core operations. Net margin = Net Income ÷ Revenue. It also includes interest, other income/expense, and taxes, and represents the shareholder take after everything.

Palo Alto Networks (PANW) Income Statement Waterfall

Revenue

$10.6B

Gross Margin

+71.9%

Operating Margin

+9.6%

Net Margin

+7.9%

Income statement waterfall for Palo Alto Networks (PANW) — TTM through Q2 2026

Net income: $843M

Margin breakdown for Palo Alto Networks (PANW) — TTM through Q2 2026

Line item	Amount	Running total
Revenue	$10.6B	$10.6B
Cost of Revenue	-$2.98B	$7.63B
Gross Profit	$7.63B	$7.63B
Operating Expenses	-$6.61B	$1.02B
Operating Income	$1.02B	$1.02B
Other Income / Expense	$374M	$1.4B
Pre-tax Income	$1.4B	$1.4B
Income Tax	-$554M	$843M
Net Income	$843M	$843M

Revenue$10.6B
Cost of Revenue-$2.98B
Gross Profit$7.63B
Operating Expenses-$6.61B
Operating Income$1.02B
Other Income / Expense$374M
Pre-tax Income$1.4B
Income Tax-$554M
Net Income$843M

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