What Is a Profit and Loss Statement?

A profit and loss (P&L) statement, also known as an income statement, is a financial statement that summarizes a company's revenues, costs, expenses, and profits/losses for a specified period.

I𒅌t provides information about a company’s abil🍨ity to generate revenues, manage costs, and make profits.

How P&L Statements Work

The P&L statement is one of three financial statements that every public company issues on a quarterly and annual basis, along with the 澳洲幸运5官方开奖结果体彩网:balance sheet and the 澳洲幸运5官方开奖结果体彩网:cash flow statement.

It is often the most popular and common financial state🌸ment in a business plan, as it shows how much profit or loss a business generaꦓted.

A P&L statement is also called:

• Statement of profit and loss
  
• Statement of operations
• Statement of financial results or income
• Earnings statement
• Expense statement
• Income statement

The P&L statement, like the cash flow statement, shows changes in accountℱs over a set period of time.

The balanജce sheet, on the other hand, shows what the company owns and owes at a particular moment in🐻 time.

It is important to compare the income statement with the cash flow statement since, under the 澳洲幸运5官方开奖结果体彩网:accrual method of accounting, a company can log revenues꧅ and expenses before cash changes hands🌳.

The P&L statement follows the general format shown in the example below (see "Example of a P&L Statement."). It begins with an entry for revenue, known as the top line, and subtracts the costs of doing business, including the cost of goods sold, operating expenses, tax expenses, and interest expenses.

The difference, known as the bott𒊎om line, is net incom𒆙e, also referred to as profit or earnings.

Comparing P&L Statements

Within a Company

It🗹 is important to compare income statements from different accounting periods.

The reason behind this is that any changes in revenues, operating costs, research and development (R&am🅷p;D) spending, and net earnings over time are more meaningfulꩲ than the numbers themselves.

For example, a company’s revenues may grow on a steady basis, but its expenses might grow at a much faster rate. It's important to know this so that a company can address it, as needed.

Of Different Companies

C🎃omparing one company’s P&෴;L statement with another in the same industry that is similar in size can also help investors evaluate the financial well-being of a company.

For example, such a comparison might reveal thꦇat one company is more efficient at managing expenses and has better growth potential than the other.  

Types of P&L Statements

As noted above, a P&L statement may be prepared in one of two ways. These are the cash method and the accrual method.

Cash Method

The 澳洲幸运5官方开奖结果体彩网:cash method, which is also called⛎ the cash accounting method, is a very simple method that only accounts for cash received or paid.

A business records transactions as revenue whenever cash is received and as liabilities whenever cash is used to🧸 pay ꩲany bills or liabilities.

This method is commonly used by smaller companies as well as people💦 wh🦩o want to manage their personal finances.

Accrual Method

The ac🔴crual accounting method records revenue as it🤡 is earned. A company using the accrual method accounts for money that it expects to receive in the future.

For instance, a company that deliver𝓰s a product or service to its customer records the revenue on its P&L statement, even though it hasn’t yet received payment.

Similarly, liabi🌌lities are accounted for even when the company hasn’t yet paid for any expens𝓡es.

Example of a P&L Statement

Below is the P&L statement for 2023 and 2022 for the hypothetical company Butterfly Industries. All of the figures are in U.S. do༺llar (USD) millions except per-share data.

You can use the P&L statement to calculate several metrics, including the gross profit margin, the 澳洲幸运5官方开奖结果体彩网:operating profit margin, the 澳洲幸运5官方开奖结果体彩网:net profit margin, and the 澳洲幸运5官方开奖结果体彩网:operating ratio.

The P&L, balance sheet, and the cash flow statem💝ent together offer an in-depth look at a company’s financial performancꦚe.

The Bottom Line

A P&L statement summarizes t💃he revenues, costs, and expenses of a company for a specific period of time.

Investors and analysts use it and other financial statements to assess thꦡe financial health of a company and itsꦆ growth potential.