What Is a Profit and Loss Statement Example?

A Profit and Loss (P&L) statement, also known as an Income Statement or Statement of Operations, summarizes a company’s financial performance over a specific period. This document details revenues, costs, and expenses, ultimately revealing its net profit or loss. It helps understand how a business generates income and manages expenditures. This report is one of three primary statements used to assess a company’s financial health, alongside the balance sheet and cash flow statement.

Key Components

A P&L statement is composed of several categories illustrating a company’s financial activities. Revenue, often called sales, represents the total money generated from core business activities, such as selling products or services. From this, the Cost of Goods Sold (COGS) is subtracted, which includes the direct costs associated with producing the goods or services sold. COGS includes material costs and labor directly involved in production.

Subtracting COGS from revenue yields Gross Profit, which indicates the profitability of a company’s core operations before other expenses. Next, operating expenses are deducted; these are costs not directly tied to production, such as selling, general, and administrative (SG&A) expenses, marketing, and research and development. Depreciation, the allocation of an asset’s cost over its useful life, is also included. The result after deducting operating expenses is Operating Income, also known as Earnings Before Interest and Taxes (EBIT), which shows profit from normal business operations.

Below operating income, non-operating income and expenses are listed. These include items like interest income or expense from loans, and gains or losses from investments or the sale of assets not central to the main business. Finally, Income Tax Expense, the taxes levied on the company’s profits, is subtracted. The final figure is Net Income, or net profit/loss, which is the total profit remaining after all expenses and taxes have been accounted for.

Understanding the Statement’s Structure

A P&L statement is presented in a top-down format, beginning with the total revenue generated by the business. This “top line” figure systematically reduces through various deductions for costs and expenses. Each subsequent line item subtracts specific categories of expenditures, illustrating how revenue transforms into profit.

The statement covers a defined period, such as a month, a quarter, or a full fiscal year. This timeframe is important for interpretation, providing a snapshot of performance over a specific duration, rather than a single point in time. The breakdown helps derive different levels of profitability, including gross profit, operating income, and net income, each offering distinct insights into the company’s financial health.

Illustrative Example

To illustrate the structure and components, consider a hypothetical small online book retailer, “Page Turner Books,” for the quarter ending March 31, 2025.

Page Turner Books
Profit and Loss Statement
For the Quarter Ended March 31, 2025

| Account | Amount |
| :———————– | :———- |
| Revenue | \$50,000 |
| Cost of Goods Sold (COGS)| \$20,000 |
| Gross Profit | \$30,000|
| | |
| Operating Expenses | |
| Salaries & Wages | \$10,000 |
| Rent | \$ 2,000 |
| Marketing & Advertising| \$ 3,000 |
| Shipping & Fulfillment | \$ 1,500 |
| Software Subscriptions | \$ 500 |
| Depreciation | \$ 200 |
| Total Operating Expenses| \$17,200|
| | |
| Operating Income | \$12,800|
| | |
| Non-Operating Items | |
| Interest Expense | \$ 300 |
| Gain on Sale of Asset | \$ 100 |
| Net Non-Operating Items| \$ (200)|
| | |
| Income Tax Expense | \$ 2,520 |
| Net Income | \$10,080|

Here, Revenue of \$50,000 represents the total sales from books sold online during the quarter. The Cost of Goods Sold (COGS) of \$20,000 includes the direct cost of purchasing the books from publishers and any direct costs for preparing them for sale. Subtracting COGS from Revenue results in a Gross Profit of \$30,000, indicating the profit from selling the books themselves before other business costs.

Operating Expenses of \$17,200 cover the costs of running the business beyond direct book acquisition. Salaries and Wages of \$10,000 are payments to employees. Rent of \$2,000 is for the office space and warehouse. Marketing and Advertising expenses of \$3,000 are for online ads and promotions.

Shipping and Fulfillment of \$1,500 cover postage and packaging for customer orders. Software Subscriptions of \$500 are for e-commerce platforms and accounting tools. Depreciation of \$200 accounts for the wearing down of assets like office equipment over time.

Deducting these operating expenses from Gross Profit yields an Operating Income of \$12,800. This figure shows the profit generated from the company’s regular operations, demonstrating its efficiency in managing day-to-day costs.

Non-Operating Items include Interest Expense of \$300, paid on a business loan, and a Gain on Sale of Asset of \$100 from selling an old, unused printer. The net effect of these non-operating items is a reduction of \$200, as the expense outweighs the gain. Finally, Income Tax Expense of \$2,520 is the tax liability based on the company’s taxable income. After all deductions, Page Turner Books achieved a Net Income of \$10,080 for the quarter, representing the company’s final profit after all financial activities and obligations.

Analyzing the Statement

Analyzing a P&L statement involves more than just looking at the final net income figure; it requires understanding the relationships between its components. One common approach is to compare the current statement with previous periods, such as the prior quarter or the same quarter in the previous year. This comparison helps identify trends in revenue growth or decline and changes in expense categories. For instance, if revenue increased by 10% but COGS increased by 20%, it suggests that the cost of acquiring or producing goods is rising faster than sales, which could impact overall profitability.

Examining profitability at different levels offers a deeper understanding of operational efficiency. Gross profit margin (gross profit divided by revenue) reveals how efficiently a business produces its goods or services. A declining gross margin might indicate rising production costs or issues with pricing strategies. Operating profit margin (operating income divided by revenue) shows how well a company manages its core operations, including administrative and selling costs. A strong operating margin suggests effective cost control in day-to-day activities. Net profit margin (net income divided by revenue) provides the ultimate measure of overall profitability, indicating the percentage of revenue that translates into actual profit after all expenses and taxes.

Uses of the Statement

The P&L statement serves various purposes for different stakeholders. Internally, management relies on this statement for informed decision-making. It helps in evaluating department performance, identifying areas for cost reduction, and setting realistic budgets and strategic goals. For example, a sudden increase in an expense category might prompt management to investigate and implement cost-saving measures.

External parties also use the P&L statement. Investors review it to assess a company’s profitability, its ability to generate earnings, and its potential for future growth. Lenders, such as banks, examine the statement to evaluate a company’s capacity to repay loans, looking for consistent and sufficient net income. Tax authorities, including the Internal Revenue Service (IRS), require P&L statements to calculate a company’s tax liabilities accurately. The net income figure directly influences the taxable amount, ensuring compliance with tax regulations.