Profit and Loss (P&L) Statement Definition
The Profit and Loss (P&L) Statement, also known as the income statement, is a financial report that summarizes revenues, costs, and expenses incurred during a specific period of time, typically a fiscal quarter or year. Its purpose is to illustrate the ability of a company to generate profit by increasing revenue, reducing costs, or both.
Profit and Loss (P&L) Statement Key Points
- P&L provides information on a company’s revenues and expenses during a specific period.
- It is used to ascertain net income (profit) or loss.
- P&L is one of the three main financial reports used to assess a company’s performance and financial position. The other two are the balance sheet and the cash flow statement.
- P&L statements are often scrutinized by investors, creditors, and internal management to evaluate financial health and business performance.
What is a Profit and Loss (P&L) Statement?
A P&L statement is a major financial statement which presents the financial performance and position of a company over a specific period. It summarizes the revenues, costs, and expenses a company incurs. The bottom line, or net income, reveals the company’s profit or loss over that period.
Who Uses the Profit and Loss (P&L) Statement?
The P&L statement is used by a variety of stakeholders. Investors and creditors use it to evaluate profitability, financial health and to make decisions about investing or lending. Internal management or business owners utilize it to make informed strategic decisions for the company’s growth.
Where and When is the Profit and Loss (P&L) Statement Used?
P&L statements are prepared and used typically at the end of a fiscal quarter or year. They can be used anywhere where there’s a need to evaluate the financial health of a company. In corporations, they’re part of the annual reports provided to shareholders.
Why Use a Profit and Loss (P&L) Statement?
The P&L statement offers insight into a company’s capacity to generate profit. It’s essential for assessing the monetary success of a firm’s operations. It provides vital data that can be contrasted with competitors or used to forecast future performance.
How to Create a Profit and Loss (P&L) Statement?
A P&L statement is created by listing all revenues before deducting any expenses. Various types of expenses – cost of goods sold, operating expenses, interest, taxes etc., are then deducted to come up with the net profit/loss. Differences in revenues and total expenses provide the net income or loss over the period.
