A Profit and Loss (P&L) statement is a financial report that summarizes a company's revenues, costs, and expenses over a specific period. It shows how revenue is transformed into net profit or loss.
- Revenue: The total income generated from sales of goods or services before any costs are deducted.
- Costs (Cost of Goods Sold): Direct costs attributable to producing the goods sold by the company.
- Gross Profit: Revenue minus cost of goods sold.
- Operating Expenses: Indirect costs such as salaries, rent, and marketing.
- Net Profit: The final profit after all expenses, including taxes and interest, have been deducted from revenue.
Understanding these components helps business owners assess financial health and make informed decisions.