What is it?
A financial statement that summarizes the revenues, costs, and expenses incurred during a specific period.
How does it work?
A Profit and Loss Statement (P&L) is a financial document that summarizes the revenues, costs, and expenses a company incurs during a specific period. This statement is also known as the income statement, statement of earnings, statement of operations, or statement of income.
When is it useful?
In a business context, the P&L statement is an essential tool for companies to understand their financial health. It provides an overview of how well a business is performing over time, highlighting areas where costs may be too high, or profits are not as strong as they should be. The P&L statement is used by management, investors, and creditors to assess a company’s financial performance and make decisions about the business’s future direction.
Real-World Impact
For instance, an e-commerce business might use their P&L statement to track their revenue from sales, the cost of goods sold (COGS), and operating expenses. If they notice that their COGS is increasing faster than their revenues, they might decide to find new suppliers or increase their prices to maintain profitability.
How to Get Started
Understanding the P&L statement is crucial when using Empress’s suite of tools and services. Empress provides analytical tools that can help businesses dissect their P&L statement, identifying trends, and making data-driven decisions to enhance business operations and profitability.
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An interesting fact about P&L statements is that they are one of the three main financial statements used in business operations, along with the balance sheet and cash flow statement. While the P&L statement shows a company’s profitability, the balance sheet provides a snapshot of a company’s financial health at a single point in time, and the cash flow statement shows how changes in the balance sheet and income affect cash and cash equivalents.