What is ‘Profit and Loss Statement (P&L)’

The profit and loss statement is a financial statement that summarizes the revenues, costs and expenses incurred during a specified period, usually a fiscal quarter or year. P&L statement is synonymous with the income statement. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs or both. Some refer to the P&L statement as a statement of profit and loss, income statement, statement of operations, statement of financial results or income, earnings statement and expense statement.

BREAKING DOWN ‘Profit and Loss Statement (P&L)’

The P&L statement is one of three financial statements every public company issues quarterly and annually, along with the balance sheet and the cash-flow statement. The income statement, like the cash flow statement, shows changes in accounts over a set period. The balance sheet, on the other hand, is a snapshot, showing what the company owns and owes at a single moment. It is important to compare the income statement with the cash flow statement since under the accrual method of accounting, a company can log revenues and expenses before cash changes hands.

The income statement follows a general form as seen in the example below. 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 expense and interest expense. The difference, known as the bottom line, is net income, also referred to as profit or earnings. You can find many templates for creating a personal or business P&L statement online for free.

It is important to compare income statements from different accounting periods, as the changes in revenues, operating costs, research and development spending and net earnings over time are more meaningful than the numbers themselves. For example, a company’s revenues may grow, but its expenses might grow at a faster rate.

The Profit and Loss Statement (P&L) Example

Below is Caterpillar Inc’s income or P&L statement for 2013 and 2014 (all figures in millions of USD except per-share data):

Twelve Months Ended December 31,	2014	2013
Sales and revenues:
Sales of Machinery, Energy & Transportation	52,142	52,694
Revenues of Financial Products	3,042	2,962
Total sales and revenues	55,184	55,656
Operating costs:
Cost of goods sold	39,767	40,727
Selling, general and administrative expenses	5,697	5,547
Research and development expenses	2,135	2,046
Interest expense of Financial Products	624	727
Other operating (income) expenses	1,633	981
Total operating costs	49,856	50,028
Operating profit	5,328	5,628
Interest expense excluding Financial Products	484	465
Other income (expense)	239	(35)
Consolidated profit before taxes	5,083	5,128
Provision (benefit) for income taxes	1,380	1,319
Profit of consolidated companies	3,703	3,809
Equity in profit (loss) of unconsolidated affiliated companies	8	(6)
Profit of consolidated and affiliated companies	3,711	3,803
Less: Profit (loss) attributable to noncontrolling interests	16	14
Profit [footnote 1: Profit attributable to common shareholders]	3,695	3,789
Profit per common share	5.99	5.87
Profit per common share – diluted [footnote 2: Diluted by assumed exercise of stock-based compensation awards using the treasury stock method]	5.88	5.75
Weighted-average common shares outstanding (millions)
– Basic	617.2	645.2
– Diluted [see footnote 2]	628.9	658.6
Cash dividends declared per common share	2.70	2.32

One can use the income statement to calculate several metrics, including the gross profit margin, the operating profit margin, the net profit margin and the operating ratio. Together with the balance sheet and cash-flow statement, the income statement provides an in-depth look at a company’s financial performance and position.

Source: Investopedia