Explaining the Profit and Loss Statement

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P&L, Income Statement, Profit and Loss. What are all these things?

Hi this is Judi Otton with GrowthCast and today we’re going to talk about that.

First of all, those are all the same things. Three different names for the same common financial report. Now, what should you be looking at when you look at this report?

The first section is the revenue section where you’ll see first all the sales you’ve generated from your standard business and maybe you even have other sources of revenue. Say you’re a food truck. So you’re generating lots of sales at your food truck, but maybe you do a little consulting for other food trucks. So you would see both of those in the revenue section. The next thing you would see is the cost of goods sold. And this is important because you want to know how much profit in this case it’s gross profit, how much profit you’re making from your sales before you start spending on all the other things that you spend on your business. At the end of the revenue section you have gross profit and you can calculate your gross profit margin, which is your gross profit over your sales. This is important because depending on your type of business, you can look up what a good gross profit margin should be for your specific business and find out how well you’re doing compared to others like you.

The next big section is expenses, and this is all these are all of the things not related to selling. So the mortgage interest on your food truck, the insurance for your food truck, any staff that you might have, any office supplies or other kinds of supplies. So all the other expenses go here. And then finally the calculation at the bottom is net profit or sometimes just called profit. And this is what’s left over from all the money that you bring in minus all the money that you spend each year or month or quarter, whatever time period you ran. That P&L or income statement for.

I have a sheet describing this, showing this picture. I realize it’s hard to picture in your head. So link here (https://growth-cast.com/pl) if you want the picture and I’ll be back next week and we’re gonna talk about the balance sheet. This is Judi Otton with GrowthCast and I’ll see you again for your next Fiscal Fitness Tip.

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