Profit and Loss Statement

Table of Contents

Profit and Loss Statement
What is a P&L statement?
Understanding a P&L statement
How does a P&L statement work?
Structure of the P&L statement
Example of a P&L statement
Frequently Asked Questions

Profit and Loss Statement

Together with the cash flow statement and the balance sheet, every publicly traded company also releases its profit and loss statement, or P&L statement, quarterly and annually. Given that it reveals how much revenue or loss a company makes, it is frequently the most common and well-known financial statement in a business strategy.

What is a P&L statement?

A P&L statement, also known as an income statement, is a financial document that presents a business’s revenues, expenses, and net income over a specific period. It is a crucial tool for understanding a company’s financial health and evaluating its profitability. A P&L statement is typically prepared monthly, quarterly, or annually and provides a summary of the company’s financial performance during that period.

The P&L statement is a critical tool for businesses to monitor their financial performance and make informed decisions about the future. By analysing the statement, business owners can identify areas of the business that are performing well and those that need improvement. They can also use the statement to compare their financial performance to industry benchmarks or competitors’ performance. In short, a well-prepared P&L statement is essential to any business’s financial management strategy.

Understanding a P&L statement

Understanding the components of a P&L statement is critical for business owners, investors, and creditors. It provides insights into the company’s performance and financial health, which can inform investment decisions and help identify areas where the company can improve its profitability.

The P&L statement starts with the company’s total revenues, including all the income generated from selling goods or services. The next section of the statement outlines the company’s expenses, which include all the costs incurred to produce and sell its products or services. These expenses can include salaries and wages, rent, utilities, advertising, and other expenses related to running the business.

The difference between the total revenue and expenses is the net income, which is the company’s profit or loss for the period. A positive net income indicates that the company has made a profit, while a negative net income indicates that the company has incurred a loss.

How does a P&L statement work?

A P&L statement begins by showing the total revenue earned during the period in question. This revenue figure is then reduced by the cost of goods sold (COGS), which includes the cost of materials, labour, and overhead expenses associated with producing the goods or services sold. The resulting figure is known as the gross profit.

After calculating the gross profit, the statement lists the company’s operating expenses, including selling, general, and administrative expenses (SG&A). This figure is subtracted from the gross profit to determine the operating income or loss.

The final section of the statement includes any income or expenses that are not part of the company’s core operations, such as interest income and expenses, taxes, and any gains or losses from investments or asset sales.

Structure of the P&L statement

The income made and expenses incurred during the statement are the two main elements of a P&L statemen. The many entries about your business break down these two elements.

Additionally, the following metrics are included in the structure:

Earnings before income tax (EBIT)
Net profit
Net sales

Cost of goods sold (COGS)
Operating expenses
Net income from operations
Gross profit
Other income

Other expenses
Income tax

Example of a P&L statement

The income or P&L statement for the fictional company XYZ Industries for 2022 and 2023 may be seen below. Except for the per-share statistics, all numbers are in millions of US dollars (USD):

XYZ Industries	2022	2023
Sales and revenues	–	–
Sales of Machinery, Energy & Transportation	50,242	52,485
Revenues of Financial Products	3,567	2,399
Total sales and revenues	54,879	56,767
Operating costs	–	–
Cost of goods sold	38,768	39,929
Selling, general, and administrative expenses	5,697	5,547
Research and development expenses	2,985	1.946
Interest expense of Financial Products	594	657
Other operating (income) expenses	1,433	1,081
Total operating costs	48,896	4,928
Operating profit	5,108	5,720
Interest expense excluding Financial Products	495	486
Other income (expense)	149	(45)
Consolidated profit before taxes	6,066	5,398
Provision (benefit) for income taxes	1,289	1,219
Profit of consolidated companies	3,623	3,409
Equity in profit (loss) of unconsolidated affiliated companies	9	(5)
Profit of consolidated and affiliated companies	3,761	3,993
Less: Profit (loss) attributable to noncontrolling interests	14	10
Profit [footnote 1: Profit attributable to common shareholders]	3,987	3,674
Profit per common share	5.97	5.85
Profit per common share — diluted [footnote 2: Diluted by assumed exercise of stock-based compensation awards using the treasury stock method]	4.99	5.16
Weighted-average common shares outstanding (millions)
– Basic	709.2	695.2
– Diluted [see footnote 2]	648.6	700.6
Cash dividends declared per common share	2.27	2.39
Less: Profit (loss) attributable to noncontrolling interests	18	16
Profit [footnote 1: Profit attributable to common shareholders]	4,487	5,109

Frequently Asked Questions

What is the impact of accounting principles on the P&L statement?

The impact of accounting principles on the P&L statement is significant. It ensures that the financial information presented in the P&L statement is consistent, comparable, and relevant to the interested parties.

The principles ensure that the revenue and expenses are recorded accurately and that the net profit or loss is calculated correctly. The P&L statement prepared per the accounting principles provides valuable insights into a company’s financial performance, which helps investors, analysts, and other stakeholders make informed decisions.

Therefore, adhering to accounting principles while preparing the P&L statement is essential. Compliance with these principles can result in accurate financial reporting, positively impacting a company’s reputation and credibility.

How to analyse a P&L statement?

Here are some of the simplest items to consider in your P&L statement:

Net sales
Sources of Income or Sales
Selling, general and administrative expenses
Net Income
profit margin

Seasonality
Cost of Goods Sold

Why is preparing a P&L statement important?

The importance of preparing a P&L statement includes the following:

If you can access your company’s profit and loss statement, you may quickly assess how the firm performed over a specific period.

You may show potential investors or purchasers how your company performs throughout operations by keeping up-to-date profit and loss accounts. This gives you some strong negotiation leverage.
When it’s time to file your business taxes, you’ll have all the information you need if you keep your P&L statements and other financial records up to date.

What are the components of a P&L statement?

The components of the P&L statement are as follows:

Cost of sales

General, sales, and administrative expenses
Revenue
Gains and losses
Other operating expenses
Non-operating income and expenses

Earnings per share
Non-recurring items
Net income

What is the difference between a P&L statement and a statement of revenue?

There is no differentiation between the statement of revenue and the profit and loss statement. A P&L statement is another term for a statement of revenue. The income statement is also called the statement of income or the statement of operations.