Profit and Loss Statement (P&L): Business financial performance analysis tool

2026-01-04 11:23:48

Profit and Loss Statement (P&L), also known as the Profit and Loss Statement, is one of the most important financial statements for executives and investors because it reveals a potentially misleading picture of a company’s revenue-generating performance. Additionally, the P&L serves as a guide for strategic business improvements to achieve optimal operational results.

What is a Profit and Loss Statement? Components and Functions

The Profit and Loss (P&L) is a financial document summarizing an organization’s operational results over a specified period, detailing revenues earned, various recorded expenses, and the final net profit or loss.

This document helps entrepreneurs understand whether their business can generate profit, identify main revenue sources, and determine which expenses can be reduced to narrow margins and increase profits. It enables more effective strategic planning and also aids in forecasting future performance.

Basic Calculation Principles: Simple Formula, Significant Results

Creating a P&L is based on a straightforward yet meaningful calculation:

Total Revenue (Total Revenue) - Total Expenses (Total Expenses) = Profit or Loss (Profit or Loss)

Breaking down each component:

Total Revenue is the income received from sales of goods, services, or other sources.
Total Expenses are the costs paid to operate the business, such as rent, marketing, advertising, etc.
The difference indicates whether the business is profitable or at a loss; higher revenue than expenses results in profit, while higher expenses lead to a loss.

P&L Structure: From Summary to Details

The process of preparing a P&L follows clear steps:

Item	Calculation
Sales and Service Revenue (Sale)	Main income from sales
Less Cost of Goods Sold (Cost of Goods Sold)	Raw materials and labor costs
= Gross Profit (Gross Profit)	Revenue before general expenses deduction
Plus Other Revenue (Other Revenue)	Interest, dividends, rent income
Less Selling Expenses (Selling Expenses)	Advertising, marketing, transportation
Less Administrative Expenses (Administrative Expenses)	Training, salaries, office expenses
= EBIT (Earnings Before Interest and Tax)	Operating profit
Less Financial Costs (Financial Cost)	Interest expenses
= EBT (Earnings Before Tax)	Profit before tax deduction
Less Tax Expenses (Tax)	Income tax
= Net Income (Net Profit)	Final income after all expenses

Meaning of Each Profit Level

Analysts often use different levels of figures to assess financial health:

Gross Profit (Gross Profit) = [Revenue – Cost of Goods Sold], indicating how much the business can price above production costs, reflecting bargaining power.
Operating Profit (Operating Profit) = [Gross Profit – Operating Expenses], showing overall management efficiency.
Net Profit (Net Profit) = [Total Revenue – Total Expenses], the true performance figure most investors focus on.

Example of a Real Business P&L Calculation

To illustrate clearly, consider an example from the Bank of Thailand in 2022, which has multiple revenue sources:

Revenue Sources (Total Revenue):

Interest income from loans
Net profit from securities transactions
Fees and service charges
Net foreign exchange gains
Other income

Expenses (Total Expenses):

Interest paid to depositors
Net loss from securities transactions
Employee-related expenses
Other expenses (Rent, utilities, advertising, etc.)

Result: Net profit of 191,077,634,015 Baht

Two Formats for Presenting P&L

The profit and loss statement can be prepared in two formats, each with different characteristics and advantages:

Format 1: Report Form (Report Form)

This presentation arranges items sequentially from revenue → expenses → net profit.

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