Introduction

A Profit & Loss (P&L) Statement — also known as an Income Statement — is one of the most important financial reports for any business. It summarises income, expenses, and overall profitability over a specific period.

Yet many business owners only look at the final profit figure and miss the deeper insights that can significantly improve decision-making.

In this guide, Bisways Consulting Group explains how to read and interpret a P&L statement effectively, understand patterns, identify leakages, and assess the true financial health of your business.

What Is a Profit & Loss Statement?

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A Profit & Loss Statement shows:

• How much revenue your business generated

• What expenses were incurred

• Whether the company made a profit or loss

It helps you understand operational performance and financial efficiency.

A standard P&L includes:

• Revenue / Sales

• Cost of Goods Sold (COGS)

• Gross Profit

• Operating Expenses

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation)

• Net Profit

Key Components of a P&L Statement

1. Revenue / Turnover

This is the total income earned from sales of products or services.

Analysing revenue trends helps determine:

• Seasonality

• Customer demand

• Growth patterns

2. Cost of Goods Sold (COGS)

These are direct costs related to producing goods or delivering services — materials, labour, and production expenses.

A rising COGS may indicate:

• Increased material cost

• Lower efficiency

• Poor vendor management

3. Gross Profit

Gross Profit = Revenue – COGS

It shows how efficiently the business uses its resources. A low gross profit margin signals pricing or cost issues.

4. Operating Expenses

These include:

• Salaries

• Rent

• Marketing

• Utilities

• Administration

It shows how efficiently the business uses its resources. A low gross profit margin signals pricing or cost issues.

5. EBITDA

A strong EBITDA means the core business operations are performing well.

6. Net Profit

This is the final profit after all expenses, taxes, and interest.
Net profit reveals overall business health.

How to Analyse a P&L Statement

Why Analysing a P&L Is Important

• Helps identify revenue opportunities

• Highlights cost leakages

• Shows which products/services are profitable

• Aids in budgeting and forecasting

• Supports investor discussions

• Ensures better operational control

• Helps track progress against targets

Common Mistakes Business Owners Make

• Looking only at net profit

• Ignoring COGS and cost patterns

• Not reviewing month-on-month trends

• Failing to compare with budgets

• Not separating fixed and variable costs

• Overlooking overheads

• Not analysing gross margins by product/service

How to Use Your P&L for Better Decision-Making

• Adjust pricing based on gross margins

• Reduce non-essential expenses

• Improve vendor negotiations to reduce COGS

• Allocate budget to high-margin products

• Identify loss-making segments

• Strengthen sales strategy using revenue trends

• Improve cash flow with better cost management

Conclusion

A Profit & Loss Statement is more than a financial report — it’s a powerful decision-making tool. By analysing revenues, costs, and margins in detail, business owners gain sharper insights into performance and areas for improvement.

At Bisways Consulting Group, we help businesses interpret their financial statements, set profitability goals, and build strong financial systems that support sustainable growth.