Profit and Loss Analysis
At Wiley Financial, we provide profit and loss analysis services in San Diego, CA. While we service all of Southern California, our office is located in Carlsbad, CA. If you are interested in learning more about how we can help your business, please contact us now.
A profit and loss analysis report (often referred to as P&L analysis report, income statement, or statement of operations) may not sound too exciting, but it can paint a very clear picture of a company’s financial health. Numbers do not lie. However, they also don’t always say the same thing to everyone. The numbers can tell a varied story when interpreted, but at Wiley Financial we tell the RIGHT story. We have a unique way of looking at the whole picture. We do the math and understand where a company is bleeding money or what revenue stream needs more attention due to cost or lack thereof. At Wiley Financial we are very good at seeing the whole picture.
A profit and loss analysis report is one of the primary financial reports for a company, which plays an important role in the financial statement analysis. It contains summarized information about a firm’s revenues and expenses over the reporting period. The goal of the income statement is to measure the profit of a business over the reporting period by deducting the business’s expenses from its revenues.
The general form of a P&L analysis report starts with the revenue entry. From there operating expenses, salary, depreciation, interest and other expenses are subtracted in order to get net earnings. Net earnings is as an absolute value. It can also be broken down into earnings per share by dividing net earnings by the number of shares outstanding.
Basic Elements of the Profit and Loss Analysis Report
1. Revenue (Net Sales) – This entry represents the value of goods or services a company has sold to its customers.
2. Cost of Goods Sold – This element measures the total amount of expenses related to the product creation process. This includes the cost of materials, labor, etc. Costs of goods sold also includes direct costs and overhead costs. Direct costs (materials; parts of product purchased for its construction; items, purchased for resale; labor costs; shipping costs) are the expenses associated with the object and its production. Overhead costs (labor costs, equipment costs, rent costs, etc.) are the expenses that are related to the business running process, but cannot be directly associated with the particular object of production.
3. Gross Profit – Gross profit is net revenue excluding costs of goods sold.
4. Operating Expense. Operating expenses include selling and administrative expenses. Selling are the expenses which relate to the process of generating sales by a company, including miscellaneous advertisement expenses, sales commission, etc. All the expenses connected with company’s operation administration, such as salaries of the office employees, insurance, etc., refer to the administrative expenses.
5. Operating Income – Operating income is gross profit minus operating expenses.
6. Other income or expense – This entry contains all the other income or expense values that weren’t included in any of the previous entries. It may be dividends, interest income, interest expense, net losses on derivatives, etc.
7. Income Before Income Taxes – Income before income taxes is operating income including (or excluding) other income or expenses.
8. Income Taxes – This entry includes all state and local taxes, which are based on the reported profit of an enterprise.
9. Net Income – Net income (net profit or net earnings) is the amount of money remaining after taking the net sales of a business and excluding all the expenses, taxes depreciation and other costs. In other words, this entry reflects the basic goal of an enterprise functioning – its profit. Following the net income in the profit and loss report is a very important part of the company’s financial report analysis.
10. Earnings Per Share – This entry is often included at the end of P&L report. It reflects the net profit as its division by the total number of shares outstanding. The result is the amount of net profit, earned by one share of common stock. This measurement can be useful for the risk management of a stockholder.