What is the 'Profit and Loss Statement (P&L)'
A profit and loss statement (P&L) is 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 – or lack thereof – 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."
BREAKING DOWN 'Profit and Loss Statement (P&L)'
The profit and loss statement, commonly referred to as the income 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 of time. The balance sheet, on the other hand, is a snapshot, showing what is owned and owed at a single moment. It is important to compare the income statement with the cash flow statement, since under the accrual method of accounting, revenues and expenses can be logged before cash actually 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 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. Many templates for creating a personal or business profit and loss statement can be found 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 be growing, but its expenses might be growing at a faster rate.
|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|
|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|
|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)|
|- Diluted [see footnote 2]||628.9||658.6|
|Cash dividends declared per common share||2.70||2.32|
When companies release quarterly reports, the headline numbers are revenues and earnings per share (EPS); the latter is often adjusted for one-time events such as, in Caterpillar's case, restructuring costs (adjusted diluted EPS for 2014 was $6.38). The market's immediate reaction has more to do with how these numbers compare to analysts' expectations than whether they represent sustainable growth. Even so, investors—particularly those with longer time horizons—are wise to dig deeper into a company's income statement.
We can see that revenues from Caterpillar's core business fell from 2013 to 2014, leading to a 0.85% decrease in total revenues, although its financial products division grew slightly. The cost of revenue ("cost of goods sold" plus "interest expense of Financial Products") decreased at a faster rate, by 2.56%, easing the blow to the bottom line. Interest expenses rose slightly, suggesting we take a look at the company's debt on its balance sheet. We can see that operating profit, profit before tax and net earnings all fell, although net earnings fell faster (-2.48%) than profit before tax (-0.88%); this is largely because income taxes rose by $61 m, despite the decrease in total revenue. Although Caterpillar's net earnings shrank from 2013 to 2014, diluted earnings per share rose. The reason is that outstanding shares decreased by 28 m, reflecting an aggressive stock buyback program Caterpillar pursued in 2014.
The income statement can be used to calculate a number of 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.
An income statement in which each account is expressed as a percentage ...
A financial statement that measures a company's financial performance ...
The process of reviewing and evaluating a company's financial ...
A statement which compares financial data from different periods ...
A reference to the gross sales or revenues of a company, or an ...
A subjective measure of how well a firm can use assets from its ...
InvestingA company’s profit and loss statement, also called its income statement, summarizes its income and expenses for a quarter or year.
InvestingThe best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
InvestingA firm’s cash flow statement measures the sources and uses of its cash. The income statement shows how it is financially performing.
InvestingA profit and loss statement, also called the income statement, is a financial statement that companies use to report their income and expenses for a quarter or a year.
InvestingRather than relying solely on net profit figures to evaluate a company's performance, seasoned investors will often look at gross profit and operating profit as well.
InvestingThink of revenue as the top line of a company’s income statement. Profit is the infamous bottom line.
InvestingNet income and profit both deal with positive cash flow, but there are important differences between the two concepts.
InvestingA company’s income statement includes the company’s gross, operating and net profits.
Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
Find out which accounting statement contains information on a company's net sales as well as other key statements analysts ... Read Answer >>
Learn how a cash flow statement measures the sources and uses of a company's cash, while an income statement measures a company's ... Read Answer >>
Understand what a company's P&L statement represents, and find out when companies traditionally publish these statements. Read Answer >>
Discover how the profit and loss statement is used by investors, accountants and business managers to assess the health and ... Read Answer >>
Understand more about the principle purposes and primary differences between a company's income statement and its balance ... Read Answer >>