A Profit and Loss Statement (P&L), also known as an income statement, statement of operations, or statement of earnings, is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year. This statement provides information about a company's ability – over a particular period – to generate profit by increasing revenue, reducing costs, or both.
Revenues (Sales): This represents the gross revenue from goods sold or services provided during the period. It's the top line or gross income figure from which costs, expenses, and taxes are subtracted to determine net income.
Cost of Goods Sold (COGS): Direct costs attributed to the production of the goods sold in a company. This could include materials, labor, and manufacturing expenses.
Gross Profit: This is calculated by subtracting the COGS from Revenue. It shows how much a company makes after paying its direct production costs.
Operating Expenses: These are the costs that are not directly tied to making a product or performing a service. They can include:
Selling, General & Administrative Expenses (SG&A): This includes salaries, sales commissions, advertising, promotional expenses, rent, utilities, office supplies, and similar expenses.
Depreciation & Amortization: Reflects the reduction in value of tangible and intangible assets over time.
Research & Development (R&D) Expenses: Costs related to the development of new products or services.
Operating Income: This is calculated by subtracting operating expenses from the gross profit. It represents the profit a company made from its core business operations.
Other Income & Expenses: This includes revenues and costs from non-core business activities, like the sale of assets, interest paid on loans, and other non-regular business activities.
Taxes: The provision for income taxes the company expects to pay.
Net Profit or Net Loss: This is the bottom line of the P&L statement. It's the result of subtracting all expenses, including taxes, from revenues. It indicates whether the company made or lost money during the period.
The P&L statement is a crucial tool for management, investors, and stakeholders to gauge the financial performance and profitability of a company. Along with the Balance Sheet and Cash Flow Statement, the P&L forms the trio of foundational financial reports used to understand a company's financial health.