Profit and Loss Statement (P&L)
A drumhead of income and expenditures for a occupation
Updated May 7, 2022
What is the Profit and Loss Statement (P&L)?
A profit and loss affirmation ( P & L ), or income affirmation or instruction of operations, is a fiscal report that provides a summary of a company ’ mho revenues, expenses, and profits/losses over a given time period of time. The P & L statement shows a ship’s company ’ s ability to generate sales, pull off expenses, and create profits. It is prepared based on account principles that include gross realization, match, and accruals, which makes it different from the cash flow statement.
Reading: Profit and Loss Statement (P&L)
persona : CFI ’ s Financial Analysis Fundamentals .
Structure of the Profit and Loss Statement
A company ’ s statement of profit and loss is portrayed over a time period of time, typically a month, quarter, or fiscal year. The main categories that can be found on the P & L include :
- Revenue (or Sales)
- Cost of Goods Sold (or Cost of Sales)
- Selling, General & Administrative (SG&A) Expenses
- Marketing and Advertising
- Technology /Research & Development
- Interest Expense
- Net Income
Example Profit and Loss Statement (P&L)
Below is an example of Amazon ’ s 2015-2017 P & L statement, which they call the Consolidated Statement of Operations. To learn how to analyze these fiscal statements, check out CFI ’ randomness Advanced Financial Modeling Course on Amazon. prototype : CFI ’ second Amazon Financial Analysis Course. Looking at the above example, we see that Amazon posted a net income of $ 596 million in 2015, a net income of $ 2.4 billion in 2016, and a profit of $ 3.0 billion in 2017. Amazon breaks down its total gross into product sales and service sales. Its operate on expenses consist of cost of sales, fulfillment, marketing, technology, G & A, and others. At this point, it provides a subtotal on the instruction for Operating Income, besides normally referred to as Earnings Before Interest and Taxes ( EBIT ). Below that, matter to expense and taxes are deducted to ultimately arrive at the net profit or loss for the period. To learn more, read Amazon ’ s annual report .
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Income Accounts vs Expenditure Accounts
There are two main categories of accounts for accountants to use when preparing a net income and loss statement. The table below summarizes these two accounts : income and expenditures .
|Revenue||Cost of Goods Sold|
|Sales||Marketing and Advertising|
|Interest Income||Selling, General & Administrative|
|Gains||Salaries, Benefits & Wages|
|Fees Charged||Interest Expense|
Impact of Accounting Principles on the P&L Statement
It might not seem obvious by looking at a profit and loss statement, but the final number at the bottom ( i.e., the sum profit or the full loss ) may be very unlike from the actual sum of cash that ’ randomness made or lost. The main factors that create a deviation between net income and cash generation are :
- Revenue recognition principle – revenue is often recognized before cash is received (which creates accounts receivable on the balance sheet)
- Matching principle – expenses are matched to revenues during the period(s) those revenues are earned
- Accrual principle – income and expenditures should be recorded during the periods they occur, not when cash is received, which can make revenue and expenses materially different from cash flow
Beyond the Profit and Loss Statement
Analysts must go beyond the profit and loss statement to get a full movie of a company ’ s fiscal health. To properly assess a clientele, it ’ second critical to besides look at the balance sheet and the cash flow statement .
1. Analyzing the Balance Sheet
The balance sheet shows a company ’ s assets, liabilities, and equity at a specific point in time. This snapshot of the party ’ s fiscal position is significant for assess :
- The company’s asset base – ability to generate future revenues
- Liabilities – future obligations the company has to meet
- Working capital – the company’s short-term liquidity position
- Capital structure – how a company is financed between debt and equity
2. Analyzing the Cash Flow Statement
The statement of cash flow shows how much cash a ship’s company generated and consumed over a period of clock time. It consists of three parts : cash from operations, cash used in investing, and cash from financing. This statement is important for measure :
- The company’s ability to generate cash from operations
- Free Cash Flow generation
- How much money has been raised (debt and or equity)
- The net change in cash position over the period
- The start and end of period cash balance
How to Analyze a Profit and Loss Statement (P&L)
One of the independent jobs of a professional fiscal analyst is to analyze the P & L of a company in order to make recommendations about the fiscal strength of the company, attraction of investing in it, or acquiring the entire clientele. Examples of P & L statement analysis include :
- Comparing year-over-year numbers (horizontal analysis) as well as industry benchmarking
- Looking at margins: gross profit margin, EBITDA margin, operating margin, net profit margin
- Trend analysis: are metrics improving or deteriorating
- Rates of return: return on equity (ROE), return on assets (ROA)
- Valuation metrics: EV/EBITDA, P/E ratio, Price to Book, etc
Profit and Loss Statement Video Explanation
Below is a television explanation of how the profit and loss instruction ( income statement ) works, the main components of the statement, and why it matters sol much to investors and company management teams.
television : CFI ’ s release Financial Analyst Courses .
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