When you are investing in the stock or when you are studying the financial reports of the company, you should know how to study the figures in the profit and loss statement as it is necessary to do so to come to a resulting analysis for a specified company. FinanceShed brings a short guide on Profit and Loss statement.
What Is Profit And Loss Statement?
Profit and loss statement is a statement which will summarize the revenues and expenses and cost of the entity for the fixed period of time let’s say for the financial year or any quarter for which the data is needed. So the profit and loss statement can be used to analyze the financial reports of the company in various ways.
Each and every business have the revenues generated and some expenses incurred to generate this revenue by regular inputs, thus this revenues will be recorded in the Profit and loss statement and the payment made towards the interest on debt or taxes, etc. which are to be paid by an enterprise in order to run the business. People are also investing in penny stocks for profit.
So, it is necessary that you know for which results and for which aspect you can extract the data from the Profit and loss statement so that to help you in analysis of an enterprise. The main equation on which the Profit and loss statement is based on is
Revenues – Expenses = Net Income.
So by this Profit and loss statement we can come to know the net income of an enterprise in the given period for which the statement is prepared. So it is important to see what we can get by analyzing the Profit and loss statement to see whether it is better to invest in company or not.
Use Of Profit And Loss Statement Of An Enterprise
- The Profit and loss statement is used in various ways by the different stake holder in the business, such as the accounts department will analyze the Profit and loss statement so that they can learn the accuracy of the financial statements recorded by the company as well as they can use it at the time of audit requirements.
- The Profit and loss statement is used by investors so that they can see how the company is doing as well as they can make decisions whether to invest in it or not.
- The management can also analyze the Profit and loss statement so that they can review the work they have done in the past period so that to help them in the future to make some plans as well as so that the preventive steps can be taken if needed to be.
So there are many such use of the Profit and loss statement like company can see to it that how the cost can be reduced so that to increase the profitability of the product marginally or they can see a trend in any of the cost which can be taken into consideration by the management.
- The Profit and loss statement helps in getting the real image of the condition in which an enterprise is working like sometimes there may be seen that the profits are increasing with the increase in the sells units but the cost per unit is also increasing due to so reason instead of decrease in the cost.