A Profit & Loss Statement, or “P&L” for short, is a foundational financial statement used to report a business’s sales (revenue) activity, the cost to produce those sales, and other operating expenses.
Broadly speaking, after deducting the expense related to the cost of goods sold and general & administrative overhead, the P&L statement summarizes the resultant profitability from the sales a company produces.
Profit is often referred to as net income or net earning and serves as a bellwether indicator of an enterprise’s financial health. One can also glean a company’s gross profit margin from a P&L statement, which is another important metric that provides insight into the pricing power a company has in the marketplace.
This statement is one of three core financial statements along with a balance sheet and cash flow statement.
Taken together, the three financial statements provide a more holistic view of a company’s performance (including, but not limited to, growth, profitability, net worth and liquidity).
Note: The P&L is sometimes known by other names, such as an income statement and a statement of operations.
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