Profit and Loss Statement (P&L)
Definition of 'Profit and Loss Statement (P&L)'
The profit and loss statement (P&L) is a complete picture of a company’s ability to generate profit. The statement takes revenues and expenses into consideration to arrive at a prediction about how a company can be profitable, either through boosting revenues or cutting costs (or in some cases both).
TheStreet Explains ‘Profit and Loss Statement (P&L)’
Also referred to as statement of profit and loss or income statement, the P&L statement is the summary of the revenue and expenses incurred by a company over a given period of time. Every public company issues three types of financial statements on a quarterly and yearly basis--the P&L, balance and cash flow statement. Collectively, these statements provide enough information for the business or investor to identify trends and determine profit direction.
The P&L statement typically has a general format that most companies can implement. Year over year is compared and the first-lined entry beginning with generated revenues. The revenue line is broken down to acknowledge the different ways a company generates revenue and then totaled. For example, a tax preparation company may generate revenue through one-on-one services, but also by selling tax preparation software. The company would break out revenue but then total the amounts for each year on the statement.
The next section is operating costs and like the revenue line item, operating costs are broken down into specifics. This could include costs of goods sold, administrative expenses and interest expense on financial products. After operating costs is the operating profit.
Included in operating profit is any other income or interest expense. Beyond that line item is tax expense and interest expense.
Everything is calculated and imputed into the bottom line otherwise known as net income or the profit or earnings. A company’s quarterly earnings report can announce earnings per share (EPS) and revenues, which provides investors with a peak into the company’s progress.
Ideally, companies should compare and contrast P&L statements from year-over-year to make sure revenues are growing but expenses are kept in check. If revenues are slowing down and expenses are soaring, this could indicate a problem. Ultimately, the P&L statement can be used to determine the gross profit margin, net profit margin, operating margin and operating ratio.
Terms Related to 'Profit and Loss Statement (P&L)':
Earnings per share, or EPS, shows the profitability of a company...