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An income statement, also known as a profit and loss (P&L) statement, is a financial statement that summarizes a company's sales, costs, profits, and losses during a given time period. The P&L statement is used to assess a company's financial performance throughout the course of the reporting period.
The first line of the statement lists the overall revenues of the company for the reporting period, which may include sales, fees, interest, and other income. The following section lists the company's costs, which may include taxes, interest costs, operational costs, and the cost of goods sold. The company's net income or loss is determined by the difference between total sales and total costs.
Businesses need P&L statements because they may use them to evaluate their profitability and financial health over a given time frame. It offers information on the firm's financial performance and potential hazards, which is helpful for creditors and investors who are thinking about lending to or investing in a company.
A company's profitability and efficiency can also be evaluated using key financial ratios that can be calculated from the P&L statement, including gross profit margin, operating profit margin, and net profit margin. Certain income statement elements are divided by total revenue or net sales to calculate these ratios.
