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.

It provides information about a comp🃏any’s ability 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开奖号码历史查询:balance sheet and the 澳洲幸运5开奖号码历史查询:cash flow statement.

It is often th🤪e most popul𝐆ar and common financial statement in a business plan, as it shows how much profit or loss a business generated.

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 statemen🎀t, like the cash flow statement, shows changeღs in accounts over a set period of time.

The balance sheet, on the other hand, shows what the company owns and owes at a particular moment ꦫin time.

It is important to compare the income statement with the cash flow statement since, under the 澳洲幸运5开奖号码历史查询:accrual method of accounting, a🅺 company can log re🦹venues 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 bottom line, 🐷is net income, also referred to as profit orꦯ earnings.

Comparing P&L Statements

Within a Company

It is important to compare inco😼me statements from different account🐟ing periods.

The reason behind 🍒this is that any changes in reven🌌ues, operating costs, research and development (R&D) spending, and net earnings over time are more meaningful 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

Comparing on🌼e 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 that one෴ company is more efficient at managing expenses and has better gr🔯owth 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开奖号码历史查询: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 𒉰transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities.

This method is commonly used by smaller companies as well as peopl꧑e𒐪 who want to manage their personal finances.

Accrual Method

The accrual accounting method records revenue as it is earned. A co🔥mpany using the accrual method accounts for money that it expects to receive ﷺin the future.

For instance, a company that delivers a product or service to its customer records the revenue on its P𝓡&am🎀p;L statement, even though it hasn’t yet received payment.

Similarly, liabilities are accounted for even when🏅 the company hasn’t yet paid for any expenses.

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 f💫igures are in U.S. dollar (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开奖号码历史查询:operating profit margin, the 澳洲幸运5开奖号码历史查询:net profit margin, and the 澳洲幸运5开奖号码历史查询:operating ratio.

The P&L, balance sheet, and the cash flow statement togetherไ offer an in-depth look at a company’s financial performance.

The Bottom Line

A P&L stat🤪ement summarizes the revenues, c🦋osts, and expenses of a company for a specific period of time.

Investors and analysts use it and other financial statements to assess the financial health of a company and i♑ts growth potential.