What is a Profit and Loss (P&L) Statement?

Mary McMahon
Mary McMahon
A profit and loss statement indicates the overall financial health of a company.
A profit and loss statement indicates the overall financial health of a company.

A profit and loss statement, also called an income statement, is a financial document that shows managers, investors, and other interested parties the financial state of a business. The statement can cover any period of time, from one day to ten years, but they are most frequently issued every quarter and every fiscal year. Potential investors use these documents to gauge the financial health of a potential investment, and current investors can see what kind of return they are getting on their shares.

Profit and loss statements detail costs and expenses along with earnings.
Profit and loss statements detail costs and expenses along with earnings.

A quick reference charting income versus expenses for the period of time it covers, a profit and loss statement usually ends with a financial amount called a net income, or bottom line. By detailing the net revenue, or total amount of money taken in by a business for goods and services, and contrasting it with net expenses, such as payroll, acquisitions, and so forth, the statement shows examiners how much money the company is making and how it is being utilized. For individuals with large amounts of money invested in the company, they are a vital tool.

Income statements are used to summarize the financial profile of a company within a certain period of time.
Income statements are used to summarize the financial profile of a company within a certain period of time.

By surveying profit and loss statements, examiners can see where the company may be headed financially. A history of statements can be used to predict trends, examine overall performance in the past, and assess how risky investment may be. Assuming that the company is not using creative accounting practices, the document should serve as an accurate representation of the company.

A company's profit and loss statement can generally be found in the company's annual report.
A company's profit and loss statement can generally be found in the company's annual report.

A very basic profit and loss statement lists net revenue at the top, along with primary sources: sale of goods, interest returns on investments, and rent revenues, for example. The sum of these sources of income can be contrasted with the expenses, detailed underneath. Balancing the two categories leaves a net income, listed at the bottom, and it is also often broken down into income per share, as well. Most companies release more detailed profit and loss statements, breaking down income and expenses further to show examiners which categories may be unusual, for example, a high expense due to the acquisition of another company. This type of statement allows companies more fully to explain unusual expenditures and other factors that may affect the income statement.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments

anon334533

Can you show me an example of a PNL variance report?

win199

@BelugaWhale - I agree. The purpose behind a P&L is to show a company what the good, bad, and ugly really is. If your company fails to teach you not only how to read the statement, but also how to alleviate the issue then it's perfectly useless. Of course, most people (like yourself)can understand when things are going good or bad according to management communication.

BelugaWhale

@win199 - I hated getting the P&L reports where I worked every quarter - they never told me anything! No one ever showed me how to read them and so I just kept on doing my thing. Of course, I understood when we didn't make the daily sales goal, but that was kind of a given. P&L statements are useless if you don't teach your employees how to handle or read them.

win199

Most companies produce a Profit and Loss statement every month. I used to work for a food service-slash-retail business and they would e-mail me one every month to see where I stood for the year. This type of report is very beneficial because it shows you what is going wrong. Some reports are even broken down into what sold better and what didn't sell at all.

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    • A profit and loss statement indicates the overall financial health of a company.
      A profit and loss statement indicates the overall financial health of a company.
    • Profit and loss statements detail costs and expenses along with earnings.
      Profit and loss statements detail costs and expenses along with earnings.
    • Income statements are used to summarize the financial profile of a company within a certain period of time.
      Income statements are used to summarize the financial profile of a company within a certain period of time.
    • A company's profit and loss statement can generally be found in the company's annual report.
      A company's profit and loss statement can generally be found in the company's annual report.