Profit & Loss Review

A profit and loss (P&L) statement, also known as an income statement, tells the financial story of a business over a specific period, typically a quarter or a year. It reveals how much money the business made (revenues or sales), how much it spent (expenses), and ultimately whether it made a profit or incurred a loss. Here’s a breakdown of the story it tells:

​

1. Revenue: This is the top line of the P&L statement and represents the total income generated from the business's primary operations, such as sales of goods or services. It indicates the scale of the business’s income-producing activities.

2. Cost of Goods Sold (COGS): This section shows the direct costs associated with producing the goods or services sold by the company. It helps in understanding how efficiently the business is managing its production or service delivery.

3. Gross Profit: Calculated as revenue minus COGS, gross profit reflects the basic profitability of the business’s core activities. It shows how well the company is performing before accounting for operating expenses.

4. Operating Expenses: These are the costs required to run the business that aren’t directly tied to production, such as salaries, rent, utilities, and marketing. They indicate how much is being spent to support operations and growth.

5. Operating Income: This is gross profit minus operating expenses. It reflects the profitability from core business operations before considering other factors like interest and taxes.

6. Net Income: The bottom line of the P&L statement, net income is calculated as income before taxes minus income tax expense. It shows the company’s total profit or loss for the period after all expenses and taxes.

 

In summary, a P&L statement provides a comprehensive overview of a company’s profitability and operational efficiency. By analyzing it, you can assess how well the business is generating profit from its revenues, managing its costs, and handling external financial factors. From here, I can offer recommendations on operational changes to improve the bottom line.