What is P&L?

P&L, or “Profit and Loss” is a financial statement that summarizes the revenues, costs, and expenses incurred by a business during a specific period, typically a fiscal quarter or year. The primary purpose of a P&L statement is to provide an overview of a company’s financial performance and show whether it has generated a profit or incurred a loss over that period.

Here’s a breakdown of what you might find on a P&L statement:

1. Revenue (or Sales): This section includes all the money a company has earned through its primary operations. It is often broken down by product or service categories.

2. Cost of Goods Sold (COGS): This represents the direct costs associated with producing the goods or services that generated the revenue. It includes expenses like raw materials, labor, and manufacturing costs.

3. Gross Profit: Gross profit is calculated by subtracting the COGS from the revenue. It reflects the profit a company makes from its core operations before deducting other expenses.

4. Operating Expenses: These are the costs associated with running the day-to-day operations of the business, such as salaries, rent, utilities, marketing, and administrative expenses.

5. Operating Income (or Operating Profit): Operating income is the result of subtracting the total operating expenses from the gross profit. It shows how much profit the company earned from its core operations.

6. Other Income and Expenses: This section includes any income or expenses that are not directly related to the company’s core operations. For example, interest income or expenses, gains or losses from investments, and one-time items.

7. Net Income (or Net Profit): Net income is the final figure on the P&L statement and represents the company’s overall profit or loss. It is calculated by subtracting other income and expenses from the operating income.

A positive net income indicates that the company made a profit during the specified period, while a negative net income indicates a loss. The P&L statement is a critical tool for business owners, investors, and analysts to assess a company’s financial performance and make informed decisions.

It’s worth noting that the P&L statement is also known as the income statement, statement of earnings, or statement of operations in different contexts.