What information does the Statement of Profit or Loss provide?

The Statement of Profit or Loss provides information about a company's revenues, costs, and the resulting profit or loss.

The Statement of Profit or Loss, also known as the income statement, is one of the key financial statements used by businesses, investors, and analysts. It provides a detailed breakdown of a company's revenues and expenses over a specific period, typically a financial year. This allows stakeholders to understand how the company has performed financially and what has driven its profitability or lack thereof.

The statement starts with the company's total revenue or sales. This is the income generated from the company's main business activities. From this, various costs are deducted. These include the cost of goods sold (COGS), which are the direct costs associated with producing the goods or services sold by the company. Other operating expenses, such as salaries, rent, utilities, and marketing costs, are also deducted.

After deducting these costs, the statement shows the company's operating profit, also known as EBIT (Earnings Before Interest and Taxes). This is the profit made from the company's core business operations, before taking into account interest and tax expenses.

The statement then deducts interest expenses (the cost of borrowing) and tax expenses to arrive at the net profit or loss for the period. This is the bottom line figure that shows whether the company has made a profit or a loss.

In addition to these basic elements, the statement may also include other items such as gains or losses from the sale of assets, or extraordinary items which are unusual and infrequent in nature.

Overall, the Statement of Profit or Loss provides a comprehensive view of a company's financial performance, showing where its money has come from and where it has gone. It is a crucial tool for anyone wanting to analyse a company's profitability and financial health.