3. What is a P&L?
A P&L (Profit and Loss statement) is, according to Investopedia:
â⌠[A] financial statement that summarizes the revenues, costs
and expenses incurred during a specific period of time, usually a
fiscal quarter or year.These records provide information about a
company's ability â or lack thereof â to generate profit by
increasing revenue, reducing costs, or both.The P&L statement is
also referred to as 'statement of profit and loss', 'income
statement,' 'statement of operations,' 'statement of financial
results,' and 'income and expense statement.'â
See: https://www.investopedia.com/terms/p/plstatement.asp
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4. ⢠The P&L (AKA the income statement), is one
of three quarterly and annual statements a
company makes as to its financial health.
The other two are:
â The cash flow statement
â The balance sheet
⢠Numerous blank P&L forms are online to help
⢠Hereâs one:
https://view.officeapps.live.com/op/view.aspx
?src=https://businesscreditblogger.com/wp-
content/uploads/2015/02/Profit-and-Loss-
Statement-Worksheet.xlswww.creditsuite.com/ein
What is a P&L?
5. What does a P&L show?
⢠The idea is to show changes in
accounts
⢠This is over a specific time frame
⢠In that way, itâs similar to your
cash flow statement
⢠Contrast this with the balance
sheet, which is more of a
snapshot
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6. Why Do You Want To Make A P&L?
⢠Apart from the obvious â someone asked for one
⢠That someone can be a lender (lenders will just about
always want a P&L)
⢠Itâs also to give you a handle on the money your
business has
⢠You know how much capital is coming in âŚ
⢠⌠and going out
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7. ⢠Start with Net Revenue (the âtop lineâ)
⢠This is the money coming in from sales
⢠Subtract the Cost of Goods Sold
⢠COGS is the hard costs associated with producing
your product/service
⢠Those can be materials, equipment, etc.
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General Principles
9. ⢠Your Gross Margin is what is left
⢠Before operating expenses
⢠Subtract your Fixed Expenses
⢠These are fixed regular expenses like insurance
and rent
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General Principles
11. ⢠Subtract yourVariable
Expenses
⢠These are changing expenses
such as travel and marketing
⢠This is your Earnings Before
Taxes (EBT)
⢠This is what you have before
taxes are taken out
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General Principles
13. ⢠Subtract your taxes
⢠These are expenses you have got to pay
⢠The amount which is left over is your Net Income
(the âbottom lineâ)
⢠This will show if your company is profitable, losing
money, or breaking even
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General Principles
15. Principles
⢠Itâs important to compare P&L statements over time
⢠Profits can rise and fall
⢠Or variable expenses will vary
⢠If profits are going up, but so are costs, then the
bottom line might remain more or less the same
⢠But you wonât know that without the detail inherent
in a P&L
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16. What else can you use a P&L for?
⢠One thing you can do is
calculate Gross Profit Margin
⢠This is a companyâs total sales
revenue minus COGS
⢠Divided by total sales revenue
⢠Expressed as a percentage
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17. Gross Profit Margin
⢠The gross margin number represents the portion of each dollar of revenue that a
company keeps as gross profit
⢠If a company's gross margin for the most recent quarter is 45%, that means it
retains $0.45 from each dollar of revenue generated
⢠The company spends the rest asCOGS
⢠Because COGS have already been taken into account, remaining funds can go to
paying off debts, general and administrative expenses, interest expenses, and any
distributions to shareholders
⢠Figure gross profit margin with this equation:
(revenue â COGS)/revenue
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18. Operating Profit Margin
⢠A P&L can also be used to calculate a
businessâs Operating Profit Margin
⢠Operating profit margin is a margin
ratio
⢠It is used to measure a company's
pricing strategy and operational
efficiency
⢠It is a measurement of what proportion
of whatever of a company's revenue is
left over after paying for variable costs
of production like wages, raw
materials, and the like
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19. ⢠Operating Profit Margin is calculated by dividing a companyâs operating
income (AKA its operating profit) within a given period by its net sales
during the same period
⢠Operating income refers to the profit which a company keeps after
removing operating expenses (like COGS and wages) and depreciation
⢠Net sales means the total value of sales minus the value of returned
goods, any allowances for damaged and missing goods, and discount
sales
⢠The equation is: operating income/net sales
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Operating Profit Margin
20. Net Profit Margin
⢠Profit margin is a portion of a category of
profitability ratios calculated as net income divided
by revenue, or net profits divided by sales
⢠Net income or net profit may be determined by
subtracting all of a companyâs expenses, such as
operating costs, material costs (like raw materials)
and tax costs from total revenue
⢠Profit margins are shown as a percentage and they
effectively measure how much from each dollar of
sales a company keeps in earnings
⢠A 20% profit margin, therefore, means a company
has a net income of $0.20 per dollar of total
revenue earned
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21. ⢠Net profit margin is the ratio of net profits to revenues for a company or for
a business segment
⢠It is often expressed as a percentage
⢠Net profit margins show how much of each dollar collected by a company
as revenue translates into profit
⢠Calculate net profit margin by figuring: net margin = net profit/revenue
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Net Profit Margin
22. Operating Ratio
⢠Operating ratio shows the
efficiency of a company's
management; it does this by
comparing operating expense
to net sales
⢠The lower the ratio, then the
greater the organization's ability
to generate profit if revenues go
down
⢠When using this ratio, investors
should note that it doesn't take
debt repayment or expansion
into account
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23. ⢠Operating ratio measures operational efficiency
⢠It is often used, with return on assets and return on
equity, as a measurement of a company's efficient use
of capital and managerial resources
⢠Tracking the operating ratio over time allows for the
identification of trends in operational efficiency
⢠Trend analysis can help to identify issues and allow for
timely course corrections
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Operating Ratio
24. ⢠A rising operating ratio means an inefficient
operating environment may need to
implement cost controls to improve its
margin
⢠A falling operating ratio means an efficient
operating environment has operating
expenses which are increasingly a smaller
percentage of sales
⢠The equation is: operating expense/net
sales
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Operating Ratio
25. Trends
⢠Analysts love trends for good reason
⢠Reviewing comparable time periods (years or quarters, usually),
you can home in on what is making your business profitable â
or causing a loss
⢠Seeing a trend can provide you with the opportunity to correct
things before they worsen
⢠Or you can do more of whatâs helping your business succeed
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26. The Power of Knowing Your Numbers
⢠The power of knowing your
numbers is vital to running a
profitable business
⢠You can make any necessary
adjustments to show a profit
⢠Numbers do not lie!
⢠They tell everything about the
health of a business
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27. ⢠Knowing your numbers means you have a huge
advantage over those who do not
⢠Your profit and loss statement tells a story of your
business
⢠Understanding the story behind your numbers can
be an extremely important factor for achieving
success
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The Power of Knowing Your Numbers
28. Recap â How to make a P&L
⢠Know your numbers
⢠Put together revenue, fixed
and variable costs
⢠Take taxes and COGS into
consideration
⢠Several P&L forms are online
to help
⢠We can help
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29. Contact Us for More Information
877-600-2487
info@creditsuite.com
How to make a P&L
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