Executives and investors need to know: What is a P&L Statement and why is it important

Profit and Loss (P&L) Statement( is a powerful financial document that tells the story of your business operations. It is not just another set of numbers but a tool that helps us understand how the business is performing over different periods.

What is a P&L Statement? Clarify the concept

A P&L is a financial statement that shows the company’s performance over a specified period, detailing revenue earned, expenses incurred, and the final result—profit or loss.

The importance of this statement lies in its ability to help business owners and investors understand:

• Where the business’s income comes from
• What the largest expenses are
• How much profit remains after all expenses are paid
• Which areas to improve in the future to increase profitability

Basic Formula: How to Calculate P&L You Must Remember

Calculating P&L is very simple, just:

Total Revenue − Total Expenses = Profit )or Loss(

Each component means:

• Total Revenue )Total Revenue(: Money received from selling goods or services
• Total Expenses )Total Expenses(: Total money spent on running the business
• Profit or Loss: The final difference

Breaking Down Profit into Steps: Read Deeper for Better Understanding

To gain a clearer picture of the business, we need to break down profit into various stages:

First: Revenue from sales and services
Start with total sales )Sale(, which is the money paid by customers

Second: Subtract the cost of goods sold
Deduct the cost of goods or services sold )Cost of Goods Sold(, resulting in:

• Gross Profit )Gross Profit(: Indicates how much you can mark up the price over the cost

Third: Add other income and subtract operating expenses

• Add: Other income )Other Revenue(, such as interest, dividends, rent
• Subtract: Selling expenses )Selling Expenses(, e.g., advertising, transportation
• Subtract: Administrative expenses )Administrative Expenses(, e.g., salaries, office rent
• Result: Operating Profit )Operating Profit( — shows how well the business is performing

Fourth: Deduct financial expenses and taxes

• Subtract: Financial costs )Financial Cost( → to get Earnings Before Tax (EBT) )Earnings Before Tax(
• Subtract: Taxes )Tax( → to get Net Income )Net Profit( — the actual profit remaining

In-depth Calculation Example

Imagine you own a small shop:

From this example, you see that even with a revenue of 500,000 THB, after deducting all expenses, the remaining profit is only 104,000 THB.

Report Format vs. Account Format: There are 2 different types of P&L

)Report Format(
This format arranges the information in simple sections:

• Header: Business name, date
• Revenue section: List all revenue items
• Expense section: List all expense items
• Final result: Profit or loss

Advantages: Easy to understand, beginner-friendly, provides a clear overview

)Account Format(
This format is a T-account style:

• Left side: Expenses
• Right side: Revenue
• Middle: Profit or loss, balancing both sides

Advantages: Comprehensive, international standard, preferred by accountants

How to Read a P&L Statement: 4 Steps You Must Know

) 1. Check the period
Make sure the statement covers which month, quarter, or year

( 2. Determine profit or loss

• If revenue > expenses → profit ✓
• If revenue < expenses → loss ✗

) 3. Study the sources of income
Where does the revenue come from? For example:

• 70% from sales
• 20% from interest
• 10% from others

( 4. Analyze the largest expenses
Which expense is the biggest? Is there a way to reduce it?

Why is the P&L Statement important for your business?

1. Measures true performance
   It shows whether your business is generating money or losing money

2. Aids decision-making
   Investors use P&L to decide whether to invest

3. Strategic planning
   Knowing which costs are highest allows you to find ways to cut them

4. Track growth
   Compare P&L over months or years to see if the business is growing or declining

5. Necessary for loans and taxes
   Banks and tax authorities also review P&L

Summary and Next Steps

The P&L Statement )Profit and Loss Statement### is a fundamental document that everyone involved in the business should understand. Properly reading and analyzing the P&L helps you:

• Understand the health of your business
• Make better decisions
• Plan for growth logically

However, just looking at the P&L alone is not enough. Additional studies should include:

• Balance Sheet: See what the business owns and owes
• Cash Flow: Monitor actual cash inflows and outflows
• Industry Data: Compare with competitors
• Management Capability: Innovation and vision

When combined, these insights give a clearer picture and enable better investment and management decisions.