A profit and loss statement shows your business’ profit and loss for the past fiscal year. It can also be called an income statement.
The profit and loss statement—or income statement—will tell you if you’re earning or losing money. That’s why it’s such an important report.
Not only is it one of the financial statements you have to generate and submit as part of the annual report, it’s also an important document for your own records, and the data in it has many uses.
What can I use the profit and loss statement for?
As mentioned, you have to submit the profit and loss statement alongside the balance sheet and the cash flow statement as part of your annual report.
The profit and loss statement, balance sheet, and cash flow statement gives an in-depth look at your business’ overall performance.
You can also use the profit and loss statement to:
- Figure out if you’re running with profit or loss. This is very important as you won’t be able to run with a loss indefinitely.
- Compare your company’s profit and loss across several fiscal years. This is important to see the development in your company. Keep in mind that a bad year doesn’t mean your business isn’t successful, low sales numbers can be due to external factors such as a pandemic, a recession, or other factors, so looking at the numbers across several years will give you a more accurate picture of how your business is doing.
- Ensure that your revenue is growing faster than your expenses. If it’s not, you have to take some steps to reduce costs, for example by laying off staff, delaying large purchases, or switching to free invoicing software
- Provide investors with more knowledge about your business. They can, for example, compare the profit and loss statement with other businesses in the same industry to evaluate how your business is doing in relation to them.