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What is the 'Profit and Loss Statement (P&L)'

A profit and loss statement (P&L) is a financial statement that summarizes

the revenues, costs and expenses incurred during a specific period of time,
usually a fiscal quarter or year. These records provide information about a
company's ability or lack thereof to generate profit by increasing revenue,
reducing costs, or both. The P&L statement is also referred to as "statement
of profit and loss", "income statement," "statement of operations,"
"statement of financial results," and "income and expense statement."

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INCOME STATEMENT

COMMON SIZE
INCOME STATEMENT

COMPARATIVE
STATEMENT

FINANCIAL
STATEMENT
ANALYSIS

BREAKING DOWN 'Profit and Loss Statement (P&L)'

The profit and loss statement, commonly referred to as the income statement, is one of three
financial statements every public company issues quarterly and annually, along with the balance
sheet and the cash flow statement.
statement. The income statement, like the cash flow statement, shows
changes in accounts over a set period of time. The balance sheet, on the other hand, is a snapshot,
showing what is owned and owed at a single moment.It is important to compare the income
statement with the cash flow statement, since under the accrual method of accounting,
accounting, revenues
and expenses can be logged before cash actually changes hands.
The income statement follows a general form as seen in the example below. It begins with an entry
for revenue
revenue,, known as the "top line," and subtracts the costs of doing business, including cost of
goods sold,
sold, operating expenses,
expenses, tax expense and interest expense.
expense. The difference, known as the
bottom line,
line, is net income,
income, also referred to as profit or
orearnings
earnings.Many
.Many templates for creating a
personal or business profit and loss statement can be found online for free.
It is important to compare income statements from different accounting periods, as the changes in
revenues, operating costs, research and development spending and net earnings over time are more
meaningful than the numbers themselves. For example, a company's revenues may be growing, but
its expenses might be growing at a faster rate.
Below is Caterpillar Inc's (CAT
(CAT)) income or profit and loss statement for 2013 and 2014 (all figures in
millions of USD except per share data):
Twelve Months Ended
December 31,

2014

2013

Sales and revenues:

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HOT DEFINITIONS
Market Capitalization
Cash Conversion Cycle - CCC
Rule Of 72

Sales of Machinery, Energy &

52,142
Transportation

52,694

Revenues of Financial
Products

2,962

3,042

http://www.investopedia.com/terms/p/plstatement.asp

Deferred Interest
Goodwill
Return On Invested Capital - ROIC
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Total sales and revenues

ProfitandLossStatement(P&L)Definition|Investopedia

55,184

55,656

Cost of goods sold

39,767

40,727

Selling, general and

administrative expenses

5,697

5,547

Research and development

expenses

2,135

2,046

Operating costs:

Interest expense of Financial

624
Products

727

Other operating (income)

expenses

1,633

981

Total operating costs

49,856

50,028

Operating profit

5,328

5,628

Interest expense excluding

Financial Products

484

465

Other income (expense)

239

(35)

Consolidated profit before taxes 5,083

5,128

Provision (benefit) for income

1,380
taxes

1,319

Profit of consolidated
companies

3,703

3,809

Equity in profit (loss) of

unconsolidated affiliated
companies

(6)

Profit of consolidated and

affiliated companies

3,711

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3,803

Less: Profit (loss) attributable to

16
noncontrolling interests

14

Profit [footnote 1:
Profitattributable to common
shareholders]

3,695

3,789

Profit per common share

5.99

5.87

Profit per common share

diluted [footnote 2: Diluted by
assumed exercise of stockbased compensation awards
using the treasury stock
method]

5.88

5.75

Weighted-average common shares outstanding (millions)

- Basic

617.2

645.2

- Diluted[see
Diluted[see footnote 2]

628.9

658.6

Cash dividends declared per

common share

2.70

2.32

When companies release quarterly reports, the headline numbers are revenues and earnings per
share(EPS);; the latter is often adjusted for one-time events such as, in Caterpillar's case,
share(EPS)
restructuring costs (adjusted diluted EPS for 2014 was$6.38). The market's immediate reaction has
more to do with how these numbers compare to analysts' expectations than whether they represent
sustainable growth. Even so, investorsparticularly those with longer time horizonsare wise to dig
deeper into a company's income statement.
We can see that revenues from Caterpillar's core business fell from 2013 to 2014, leading to a 0.85%
decrease in total revenues, although its financial products division grew slightly. The cost of revenue
("cost of goods sold" plus "interest expense of Financial Products") decreased at a faster rate, by
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2.56%, easing the blow to the bottom line. Interest expenses rose slightly, suggesting we take a look
at the company's debt on its balance sheet.We can see that operating profit,
profit, profit before taxand
taxand
net earnings all fell, although net earnings fell faster (-2.48%) than profit before tax (-0.88%); this is
largely because income taxes rose by $61 m, despite the decrease in total revenue.Although
Caterpillar's net earnings shrank from 2013 to 2014, diluted earnings per share rose. The reason is
that outstanding shares decreased by 28 m, reflectingan aggressive stock buyback
programCaterpillar pursued in 2014.
The income statement can be used to calculate a number of metrics, including the gross profit
margin,, the operating profit margin,
margin
margin, the net profit margin and the operating ratio.
ratio. Together with the
balance sheet and cash flow statement, the income statement provides an in-depth look at a
company's financial performance and position.

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