Profit & Loss (P&L) Statement

The profit & loss statement summarizes the revenues and expenses generated by the company over the entire reporting period. The profit & loss statement is also known as the income statement, statement of earnings, statement of operations, or statement of income.

The basic equation on which a profit & loss statement is based is Revenues – Expenses = Profit.

All companies need to generate revenue to stay in business. Revenues are used to pay expenses, interest payments on debt, and taxes owed to the government. After the costs of doing business are paid, the amount left over is called net income. Net income is theoretically available to shareholders, though instead of paying out dividends, the firm’s management often chooses to retain earnings for future investment in the business.

Profit & loss statements are all organized the same way, regardless of industry. The basic outline is shown in the following example:

Profit & Loss Statement for Company XYZ, Inc.
for the year ended December 31, 2008

Total Revenue                        $100,000

Cost of Goods Sold               ($ 20,000)
Gross Profit                             $ 80,000

Operating Expenses    
 Salaries          $10,000   
 Rent               $10,000
 Utilities            $  5,000
 Depreciation   $  5,000
Total Operating Expenses    ($ 30,000)
Operating Profit (EBIT)           $ 50,000

Interest Expense                    ($ 10,000)
Income before taxes (EBT)     $ 40,000

Taxes                                        ($ 10,000)
Net Income                                $ 30,000

Number of Shares Outstanding      30,000

Earnings Per Share (EPS)             $1.00