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Profit and Loss Statement (P&L)

A summary of income and expenditures for a business

Written by

Tim Vipond

Published September 1, 2023

Updated July 7, 2023

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

A profit and loss statement (P&L), or income statement or statement of operations, is a financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create profits. It is prepared based on accounting principles that include revenue recognition, matching, and accruals, which makes it different from the cash flow statement.

Image: CFI’s Financial Analysis Fundamentals.

Structure of the Profit and Loss Statement

A company’s statement of profit and loss is portrayed over a period of time, typically a month, quarter, or fiscal year.

The main categories that can be found on the P&L include:

Revenue (or Sales)

Cost of Goods Sold (or Cost of Sales)

Selling, General & Administrative (SG&A) Expenses

Marketing and Advertising


/Research & Development

Interest Expense


Net Income

Example Profit and Loss Statement (P&L)

Below is an example of Amazon’s 2023-2023 P&L statement, which they call the Consolidated Statement of Operations. To learn how to analyze these financial statements, check out CFI’s Advanced Financial Modeling Course on Amazon.

Image: CFI’s Amazon Financial Analysis Course.

Amazon breaks down its total revenue into product sales and service sales. Its operating expenses consist of cost of sales, fulfillment, marketing, technology, G&A, and others. At this point, it provides a subtotal on the statement for Operating Income, also commonly referred to as Earnings Before Interest and Taxes (EBIT).

Below that, interest expense and taxes are deducted to finally arrive at the net profit or loss for the period. To learn more, read Amazon’s annual report.

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Income Accounts vs Expenditure Accounts

There are two main categories of accounts for accountants to use when preparing a profit and loss statement.

The table below summarizes these two accounts: income and expenditures.


RevenueCost of Goods Sold

SalesMarketing and Advertising

Interest IncomeSelling, General & Administrative

GainsSalaries, Benefits & Wages

Fees ChargedInterest Expense

Commissions EarnedInsurance

Rental IncomeTelecommunication

Professional Fees


Impact of Accounting Principles on the P&L Statement

It might not seem obvious by looking at a profit and loss statement, but the final figure at the bottom (i.e., the total profit or the total loss) may be very different from the actual amount of cash that’s made or lost.

The main factors that create a difference between profit and cash generation are:

Revenue recognition principle – revenue is often recognized before cash is received (which creates accounts receivable on the balance sheet)

Matching principle – expenses are matched to revenues during the period(s) those revenues are earned

Accrual principle – income and expenditures should be recorded during the periods they occur, not when cash is received, which can make revenue and expenses materially different from cash flow

Beyond the Profit and Loss Statement

Analysts must go beyond the profit and loss statement to get a full picture of a company’s financial health. To properly assess a business, it’s critical to also look at the balance sheet and the cash flow statement.

1. Analyzing the Balance Sheet

The balance sheet shows a company’s assets, liabilities, and equity at a specific point in time. This snapshot of the company’s financial position is important for assessing:

The company’s asset base – ability to generate future revenues

Liabilities – future obligations the company has to meet

Working capital – the company’s short-term liquidity position

Capital structure – how a company is financed between debt and equity

2. Analyzing the Cash Flow Statement

The statement of cash flow shows how much cash a company generated and consumed over a period of time.  It consists of three parts: cash from operations, cash used in investing, and cash from financing. This statement is important for assessing:

The company’s ability to generate cash from operations

Free Cash Flow generation

How much money has been raised (debt and or equity)

The net change in cash position over the period

The start and end of period cash balance

How to Analyze a Profit and Loss Statement (P&L)

One of the main jobs of a professional financial analyst is to analyze the P&L of a company in order to make recommendations about the financial strength of the company, attractiveness of investing in it, or acquiring the entire business.

Examples of P&L statement analysis include:

Comparing year-over-year numbers (horizontal analysis) as well as industry benchmarking

Looking at margins: gross profit margin, EBITDA margin, operating margin, net profit margin

Trend analysis: are metrics improving or deteriorating

Rates of return: return on equity (ROE), return on assets (ROA)

Valuation metrics: EV/EBITDA, P/E ratio, Price to Book, etc

Profit and Loss Statement Video Explanation

Below is a video explanation of how the profit and loss statement (income statement) works, the main components of the statement, and why it matters so much to investors and company management teams.

Video: CFI’s Free Financial Analyst Courses.

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