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![What is a P&L?
A P&L (Profit and Loss statement) is, according to Investopedia:
“… [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.'”
See: https://www.investopedia.com/terms/p/plstatement.asp
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How to make a P & L
- 1. HOW TO MAKEA P&L
- 2. Ty Crandall CEO, CreditSuite (877) 600-2487 info@creditsuite.com www.creditsuite.com/ein
- 3. What is aP&L? A P&L (Profit and Loss statement) is, according to Investopedia: “… [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.'” See: https://www.investopedia.com/terms/p/plstatement.asp www.creditsuite.com/ein
- 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: – The cash flow statement – The balance sheet • Numerous blank P&L forms are online to help • Here’s 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 aP&L show? • The idea is to show changes in accounts • This is over a specific time frame • In that way, it’s similar to your cash flow statement • Contrast this with the balance sheet, which is more of a snapshot www.creditsuite.com/ein
- 6. Why Do YouWant To Make A P&L? • Apart from the obvious – someone asked for one • That someone can be a lender (lenders will just about always want a P&L) • It’s also to give you a handle on the money your business has • You know how much capital is coming in … • … and going out www.creditsuite.com/ein
- 7. • Start withNet Revenue (the “top line”) • 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. www.creditsuite.com/ein General Principles
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- 9. • Your GrossMargin is what is left • Before operating expenses • Subtract your Fixed Expenses • These are fixed regular expenses like insurance and rent www.creditsuite.com/ein General Principles
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- 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 www.creditsuite.com/ein General Principles
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- 13. • Subtract yourtaxes • These are expenses you have got to pay • The amount which is left over is your Net Income (the “bottom line”) • This will show if your company is profitable, losing money, or breaking even www.creditsuite.com/ein General Principles
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- 15. Principles • It’s importantto 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 won’t know that without the detail inherent in a P&L www.creditsuite.com/ein
- 16. What else canyou use a P&L for? • One thing you can do is calculate Gross Profit Margin • This is a company’s total sales revenue minus COGS • Divided by total sales revenue • Expressed as a percentage www.creditsuite.com/ein
- 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 – COGS)/revenue www.creditsuite.com/ein
- 18. Operating Profit Margin •A P&L can also be used to calculate a business’s 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 www.creditsuite.com/ein
- 19. • Operating ProfitMargin is calculated by dividing a company’s 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 www.creditsuite.com/ein 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 company’s 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 www.creditsuite.com/ein
- 21. • Net profitmargin 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 www.creditsuite.com/ein Net Profit Margin
- 22. Operating Ratio • Operatingratio 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 www.creditsuite.com/ein
- 23. • Operating ratiomeasures 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 www.creditsuite.com/ein Operating Ratio
- 24. • A risingoperating 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 www.creditsuite.com/ein Operating Ratio
- 25. Trends • Analysts lovetrends for good reason • Reviewing comparable time periods (years or quarters, usually), you can home in on what is making your business profitable – 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 what’s helping your business succeed www.creditsuite.com/ein
- 26. The Power ofKnowing 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 www.creditsuite.com/ein
- 27. • Knowing yournumbers 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 www.creditsuite.com/ein The Power of Knowing Your Numbers
- 28. Recap – Howto 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 www.creditsuite.com/ein
- 29. Contact Us forMore Information 877-600-2487 info@creditsuite.com How to make a P&L www.creditsuite.com/ein