Profit and loss statement (P&L)

What is a profit and loss statement (P&L)?

A profit and loss statement is the financial report that shows revenue, costs and the resulting profit or loss over a period such as a month, quarter or year. It starts with revenue, subtracts the cost of delivering the work to reach gross profit, then subtracts operating expenses, interest and taxes to reach net income.

Why it matters to a revenue leader

The P&L is how finance, the board and the sponsor judge the commercial team. Many services companies also run a P&L for each branch, which makes branch managers accountable for margin and overhead as well as sales. A revenue leader who reads the P&L can show where commercial decisions land: price in revenue, job mix in gross margin, headcount in operating expense. The P&L leaves out cash timing, so read it with the cash flow statement.

A branch's quarterly P&L shows $4 million of revenue, $2.8 million of direct costs and $700,000 of branch overhead. Gross profit is $1.2 million and branch contribution is $500,000. A 2 percent price increase with steady volume and cost would add $80,000 to both lines.