P&L stands for Profit and Loss and refers to a financial tool used to analyze the performance of a company and its profitability. A P&L Statement is a report that shows how much profit or loss was generated by a company and it summarizes its revenues, costs and expenses in a specific period of time.
P&L is determined by deducting total expenses from total income. This analysis provides a better understanding of a company's overall financial performance by allowing you to trace the sources of profit or loss over a certain time period.
The basic formula used to make a P&L report is:
- Cost of Revenue (deductions and taxes)
Gross Profit -> Gross Margin
P&L statement is important because it helps you to analyze the profitability of your business and its financial performance, putting in evidence the company’s ability to generate revenue and manage costs and expenses. They are useful for assessing a company's success and making intelligent decisions about future investments and plans.
Among the benefits brought by a P&L statement, we can highlight:
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