Stock Market · Fundamental Analysis

The P&L statement decoded

The Profit and Loss statement (also called Income Statement) shows how much a company earned and spent over a period (quarter or year). It's the most commonly referenced financial statement.

The structure, top to bottom

1. Revenue (Top line): total sales/income from the business

2. Cost of Goods Sold (COGS): direct cost to produce what was sold

3. Gross Profit = Revenue − COGS

4. Operating Expenses (SGA, R&D, marketing): overhead costs

5. EBITDA = Gross Profit − Operating Expenses (before interest, tax, depreciation)

6. Depreciation & Amortisation

7. EBIT (Operating Profit) = EBITDA − Depreciation

8. Interest expense (on debt)

9. EBT = EBIT − Interest

10. Tax

11. Net Profit (Bottom line) = EBT − Tax

> Revenue is vanity. Profit is sanity. Cash is reality., FA axiom

Key metrics derived from P&L

• Gross margin = Gross Profit ÷ Revenue × 100. Higher = more pricing power.
• EBITDA margin = EBITDA ÷ Revenue × 100. Operating efficiency.
• Net profit margin = Net Profit ÷ Revenue × 100. Bottom-line efficiency.

What to look for

• Revenue growing consistently (8–15%+ for good companies)
• Margins stable or expanding (if margins are falling, competitiveness may be eroding)
• Net profit growing at least as fast as revenue

20%+Net profit margin typical of quality large-cap IT services companies

3–5%Typical organised-retail net margin. FMCG is far higher, often 15–25%

The trap: PAT is not cash

Net profit (PAT. Profit After Tax) can be manipulated through accounting. Always cross-check with cash flow from operations to confirm real profitability.

Takeaway. P&L shows revenue to net profit. Watch margins. Gross, EBITDA, net. Revenue growth without margin expansion is often a warning. Verify PAT with cash flow statements.