What is a profit and loss statement?
A profit and loss statement is an important document for a business that acts as a financial statement. Also shortened to P&L statement, and similar to income statements, this document reports on the costs, expenses and revenues accrued over a selected time frame. It can act as a helpful indicator of the financial health of a business, enabling strategy teams to plan for the future.
Key takeaways from this section:
- The profit and loss statement is a document that businesses release yearly or quarterly depending on their business approach and industry. It acts as report on the revenue made by the business in that time, as well as the business costs accrued through expenses.
- The profit and loss statement is one of three key reports which are released by a business in a year or a quarter – the other two are the balance sheet and the cash flow statement.
- These three documents together, and when compared to other years and periods, can give a clear picture of the financial health of a business.
Profit and Loss Statements can often be referred to under a number of different titles, including:
- Statement of financial results
- Earning statement
- Expense statement
- Statement of operations
Regardless of name, profit and loss statements are a good report of whether a company can make any profit, based on the revenue that comes in, and the costs and expenses that go out.
The profit and loss statement will be one of a series of documents that businesses release over the course of a year, normally after each quarter and often as part of a year’s work. The others include the balance sheet and a cash flow statement. The balance sheet gives a rundown of the business’ complete assets, debts and equity, while the cash flow statements gives a summary of where the cash coming into the business is from, and where the money going out of the business is going.
These three documents can be compared against other years and quarters to create forecasts, strategies and more for the financial wellbeing of the company.
Understanding how Profit and Loss Statements work
Most profit and loss statements are produced using a form and format that most businesses will use. The first entry on the statement will be the revenue which is the money brought in by the business’ operations.
The expenses and operating costs that have been paid for by the business are then subtracted from the revenue which leaves the net income. This is what is often referred to as the profit – the profit that the company has made over the period that the profit and loss statement covers. These numbers, especially when compared with previous years and quarters, can give interesting metrics and can be used to calculate other figures to give a fuller picture of the business’ results.
Profit and loss statements FAQs
How do I do a Profit and Loss Statement?
Many profit and loss statements follow a similar format, and often use the same template for their document. You can find a number of templates online which you can use with permission, and these templates should make the process easier and more straightforward.
In very general terms, you’ll need to subtract the overall amount of all of your expenditure, costs and expenses from the revenue you’ve made through the stated period. This will give you the profit you’ve made over the year or through the quarter.
What are the three main lines on a Profit and Loss Statement?
Generally, each profit and loss statement has three lines of values which represent different parts of the company’s financial make up.
- The first line, or the top line, is for your business’ revenue – how much the business made.
- The second line is for your business’ expenses – how much your business spent in costs and expenditure.
- The final line, known as the bottom line, is the profit your business has made. This is the revenue, minus the costs and expenditure.
How do you read a Profit and Loss Statement?
Profit and loss statements can seem complex and sometimes daunting, but in reality, they are simply a report on everything your business has earnt, everything it has spent and the resulting profit.
You can find entries for the money you have made on the top line, and you can find the amount your business has spent in the expenses line. The most important part of the entire P&L document however, is the bottom line – the profit. This number will be the best indicator of how well your business is doing financially, and how much you need to do to improve its condition.
Have you thought about Invoice Finance as a cash flow solution for your business?
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
The benefits of invoice finance companies such as Novuna Business cash flow
Want to understand more Cash Flow Finance terms?
Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.
We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.
Competent staff, slick technology. Would recommend
Halo is one of the smartest bits of tech I have seen & every team is only as good a it's people and I would like to take this time to actually specifically point out Alex Hall & Claire Davies. Alex is an account manager that has continually improved during our time working together and is a real credit to Novuna. Claire has been exceptional from start to finish; meticulous in her work and very patient with us at every temp - an absolute star. It is a shame that the email address went to a generic platform and not each individual. I totally understand why this works better for companies but it did mean that the personal element was lost meaning that starts like Claire will be harder to identify from a customer point of view.
High recommedation for Novuna Business Cashflow.
My company was in need of invoice factoring to assist with the cashflow due to the nature of debtor days with our clients. After looking at a number of options, the right decision was made to work in partnership with Novuna Business Cashflow. Right from setup through sales to customer service, the communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll. This has allowed my company to look at positive growth knowing we are safe financial hands. I would highly recommend Novuna Business Cashflow 10/10.
Set up went well and communication was good.
Syed and Vipul were extremely helpful top class service
Very helpful from the start
Great people made this process very straightforward.
Jemma from Novuna (formally Hitachi) was brilliant. Worked with us throughout the process and succeeded when some others had failed. Carried out the necessary checks with a smile and cheery demeanour, making what would have been a laborious process quite manageable.
Teething problems -Maybe ?
It's still early days so I may alter this review at a later date. However with retentions and concentration limits and other items, were finding were not getting 85% up front, were probably getting nearer 70% Also when a customer pays the remaining allegedly 15% due to us seems not to be credited to become available. For instance a customer paid Â£6918 and a customer paid Â£1300 hence we should see an extra Â£1330 available (15% of both these payments). However availability seemed to go down and not up by Â£1330 !!! Hard to work out where this 15% has actually gone ? I'll re-submit this review when things become clearer.
I found Hitachi true to their world in every aspect of the service they promised. I can't recommend enough.
Excellent Customer care and service.
Excellent customer service from start of initial conversations, right through to finally becoming a customer. The whole team involved are a credit to Hitachi, they were accommodating and informative the whole way along the process. I would highly recommend Hitachi to future clients and business associates. Thanks Alan.
I really enjoyed working with the Hitachi team, professional, helpful and really good people to deal with. They have made what could have been a very difficult experience a pleasure. Very happy to recommend them.
Hitachi made the process of moving factoring facilities painless, bearing in mind we previously had our facility with the same provider since 1997. I cant fault Hitachi's staff and processes and we are delighted with the move.
Staff excellent all together professional
Great service so far
From start to finish the process for transferring our invoice finance to Hitachi has been been brilliant, a smooth transition, great communication our link Person Jonathan Oakes has helped the process go through seamlessly, A great experience so far and a brilliant start to what we hope will be a long term partnership.