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Business Finance 101 – Profit and Loss Statement – What it tells us

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One of the main business reports we use, and what it tells us is how the business is going – it is the Profit & Loss Statement or. The statement shows all the sales for a period less cost of goods (if you sell product) leaving gross profit, then from that all the expenses (operating or overheads like rent, wages etc) leaves  the operating profit (not always reported), then from that less any non-regular income and expenses, gives us the final net profit. bus-profit-loss-diagram

In summary, there are three main levels of profit or profit margins

Gross profit (after cost of sales deducted from sales/revenue),

Operating profit (sometimes given = after expenses deducted) also known as Pre-tax profit (before tax and other non-regular items) and

Net profit (Final, after tax and other non-regular expenses and income).

Note that “profit”, “earnings” and even “income” are all used interchangeably, and mean the same thing.

When the term “margin” is stated, it can apply to the absolute dollar number for a given profit level and/or the number as a percentage of sales/revenues.

The absolute amount, the dollar amount, is on the Profit & Loss Statement. The net profit margin commonly uses the percentage calculation to provide a measure of a company’s profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. The margin is the amount of profit (at the gross, operating, pre-tax or net level) as a percent of the sales generated.

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Author: accountkeepingplus

Administration, bookkeeping and compliance for small business, and Self-Managed Super Funds (SMSF) Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, Free support MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

One thought on “Business Finance 101 – Profit and Loss Statement – What it tells us

  1. Pingback: MASTERCLASS Investment – What is a Profit & Loss or Income Statement? | SuperBenefit News

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