Profit and Loss Statement

A Profit and Loss Statement (P&L), also known as an income statement, is a fundamental financial document that provides a comprehensive overview of a company's financial performance over a specific period, typically a quarter or fiscal year. P&L summarizes the revenues, costs, and expenses incurred during the specified time frame, ultimately showing whether a company made a profit or suffered a loss.

The statement begins with the company's revenue (also called the "top line"), which represents the total income generated from sales of goods or services. From this figure, various costs and expenses are subtracted in a structured manner. First, the cost of goods sold (COGS) is deducted to calculate the gross profit. Then, operating expenses such as salaries, rent, utilities, and marketing costs are subtracted to determine the operating profit or earnings before interest and taxes (EBITDA).

Finally, after accounting for interest expenses, taxes, and any extraordinary items, the statement reveals the net profit or loss (the "bottom line"). This final figure shows whether the company operated profitably during the period and by how much.

The P&L statement helps founders track their company's financial health, make informed decisions about resource allocation, and identify areas for potential cost reduction or revenue growth. Investors use P&L statements to assess a company's profitability, operational efficiency, and overall financial performance. Additionally, P&L statements are used for tax reporting purposes and are often required by Series A and growth investors.

The P&L should be analyzed alongside the Balance Sheet to understand how profitable operations translate into overall financial position and cash management.

When analyzing P&L performance, consider these interconnected metrics:

Customer Acquisition Cost (CAC): Marketing expenses that directly impact operating costs and profitability
Customer Lifetime Value (LTV): Long-term revenue potential that validates customer acquisition investments
Return on Ad Spend (ROAS): Marketing efficiency that affects both revenue generation and expense optimization
Gross Margin: Profitability percentage that shows pricing power and operational efficiency
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR): Predictable revenue streams for subscription businesses

Understanding these relationships helps create a complete picture of business performance beyond what the P&L statement alone reveals.