P&L (Profit and Loss Statement)

What Does a P&L Include?

A P&L statement typically includes:

• Revenue: The money you’re bringing in from sales.
• Expenses: What it costs to run your business.
• Profit (or Loss): What’s left after you subtract expenses from revenue.

What Can You See in a P&L?

Here’s a simple breakdown of what you might see on a P&L:

• Revenue: Total income from sales or services.
• Cost of Goods Sold (COGS): Direct costs of producing goods or services.
• Gross Profit: Revenue – COGS.
• Operating Expenses: Costs of running the business, such as salaries, rent, and utilities.
• Operating Profit: Gross Profit – Operating Expenses.
• Other Income/Expenses: Non-operational income or costs, such as interest or investments.
• Net Profit (or Loss): The bottom line: Operating Profit +/- Other Income/Expenses.

Why Does the P&L Matter?

The P&L doesn’t exist in isolation; it’s a crucial tool for decision-making. It helps business owners and stakeholders:

• Understand if they’re making money.
• Identify where their expenses are highest.
• Evaluate operational efficiency and profitability.

For investors, it provides insights into a company’s profitability and operational efficiency. The P&L focuses on performance over time, while other financial statements, like the Balance Sheet and Cash Flow Statement, provide different perspectives.

Time Periods for P&L Statements

P&Ls can be prepared for different time periods, such as:

• Monthly
• Quarterly
• Annually

Comparing P&Ls over time can help identify trends in your business performance:

• Are your revenues growing?
• Are your expenses under control?
• Is your profitability improving?