Published by Gulshan Sachdev on 22/03/2019 at 8:33 PM

Profit & Loss Statement Simplified

Profit & Loss statement is made for a specific time frame. Usually for listed companies, profit and loss statement is given every 3 months, termed as quarterly P&L. On the other hand balance sheet is made for a moment (hence it is always made as on date).

In P&L, we deduct all the expenses from sales thereby giving us the absolute profit which is the only reason why people invest in company. Analysis of expense heads gives us indication of operational health of the company. P&L analysis is always done in conjunction of balance sheet analysis.

Let us take an example of a coffee shop. Here we will make P&L for a MONTH. A coffee shop shall have raw material like milk, coffee and sugar. Processing expenses will include manpower cost, electricity, maintenance cost, sales and marketing expenses. Lets assume the following:

Gross Sales – 1,05,000/-

Service Tax/ Excise Duty = 5000

Net Sales = 105000 – 5000 = 100000

Raw Material (Coffee, Sugar, Milk) – 50000

Manpower Cost – 15000

Other Expenses (Electricity, Maintenance, Sales & Marketing) – 10000

Hence Operational Expenses = 50000 + 15000 + 10000 = 75000

Earnings after Operational Expenses = 100000 – 75000 = 25000

Till this point we have not deducted Interest (finance cost), Tax and Depreciation or Amortization. Hence this earning is also termed as Earnings Before Interest, Tax, Depreciation or Amortization (EBITDA)

Operational Efficiency or EBITDA Margin = (Sales – Operational Expense) / Sales

Operational Efficiency or EBITDA Margin = (100000 – 75000) /100000 = 25%

Adding Depreciation & Amortization Expense

Now, Depreciation and Amortization Expense = 5000

Operational Expense + Depreciation Amortization = 75000 + 5000 = 80000

Earnings after Operational Expense & Depreciation & Amortization = 100000 – 80000 = 20000

As we haven’t added Interest and Tax till now, hence this earning is also called as Earnings Before Interest & Tax or EBIT

EBIT Margin = (100000 – 80000) / 100000 = 20%

Adding Interest Expense

Lastly we have to consider Interest or Finance Cost = 5000

Operational Expense + Depreciation / Amortization + Interest = 75000 + 5000 + 5000 = 85000

Here only tax is excluded as expense hence, this earnings is also termed as Profit Before Tax (PBT) = 100000 – 85000 = 15000 or 15% of Net Sales

Finally we need to add Tax as an expense. Tax = 5000Profit After Tax (PAT) = 15000 – 5000 = 10000 or 10% of Net Sales

Annual Consolidated Profit & Loss Statement of Apollo Tyres