How to Read a Profit & Loss Statement

A profit and loss statement shows all the expenditures and income for a business during a specified period of time. A profit and loss statement can be confusing to read by someone who's never seen one before. However, once you understand what the items on the statement mean, it becomes much simpler to read.

Difficulty:

Moderately Easy

Instructions

How to Read a Profit & Loss Statement

1. Look at the section titled Sales. This is the area in which all of a business's sales are listed. Usually a profit and loss statement will list each specific customer and how much each paid into the business in revenue.

2. Find where it says Operating Expenses. This is the list of expenditures a business had in order to operate the business. This will include wages, products it had to buy in order to conduct business and any shipping expenses.

3. Locate the Net Profit. This is the total amount that the business profited by during the specified period of time. The total profit can be a large amount, if the business performed well during that period. Or it could be a negative number, if it spent more than it brought in in revenue during that time.

4. Understand what the Depreciation section means. This section exists largely for tax purposes. Many businesses must show how the equipment and supplies that they own over the course of a year have diminished in value. This is used to determine the overall value of the business in its current state.

5. Note that Other Income and Expenditures means payments into and out of the business during the course of that period of time that are unrelated to the day-to-day operating expenses of the business. This might include the buying and selling of property or interest payments earned on savings and other types of investment accounts that don't have much at all to do with what the business does.

Resources

• Investor words
• Create a profit & loss statement