📈 Understanding the Profit & Loss Statement

Also called the Income Statement – your guide to knowing if a company is making money

🧾 What is a Profit & Loss (P&L) Statement?

The P&L statement shows the financial performance of a company over a period — usually a quarter or financial year.

If the balance sheet is a snapshot of “what a company owns and owes,”
then the P&L is like a video recording of how well the business performed.

It answers:

• Did the company make a profit or a loss?

• How much did it earn in revenue?

• What were its major expenses?

 📂 Structure of a P&L Statement

Section	What It Means	Example
Revenue (Sales)	Total money earned from business operations	₹100 crore from software sales
COGS (Cost of Goods Sold)	Direct cost to deliver the product/service	₹40 crore in tech & support cost
Gross Profit	Revenue – COGS	₹60 crore
Operating Expenses	Salaries, rent, marketing, admin expenses	₹25 crore
Operating Profit (EBIT)	Profit from core operations	₹35 crore
Other Income/Expenses	Non-core items like interest income/loan costs	₹+5 crore
Profit Before Tax	EBIT + Other Income/Expenses	₹40 crore
Taxes Paid	Tax applicable on the profit	₹10 crore
Net Profit (PAT)	Final profit after tax — real earnings	₹30 crore

📌 Real Example – Infosys Ltd. FY24 (Simplified)

Line Item	₹ Crores
Revenue	1,50,000
Cost of Services	90,000
Gross Profit	60,000
Operating Expenses	25,000
Operating Profit (EBIT)	35,000
Other Income	5,000
Profit Before Tax	40,000
Tax	10,000
Net Profit (PAT)	30,000

🟢 Net Profit Margin = 30,000 / 1,50,000 = 20%

What does this mean?
Infosys kept ₹20 out of every ₹100 it earned — a strong profit margin.

🌎 Global Example – Microsoft Q1 FY2024 (in USD Billion)

cost of Revenue	USD (Bn)
Revenue	61.86
Cost of Revenue	23.47
Gross Profit	38.39
Operating Expenses	14.56
Operating Profit (EBIT)	23.83
Other Income	0.47
Profit Before Tax	24.3
Tax	4.63
Net Profit (PAT)	19.67

🟢 Net Profit Margin = 31.8% — indicates exceptional efficiency

🔢 Important Metrics from P&L

Metric	Formula	Why It Matters
Gross Margin	Gross Profit ÷ Revenue	Higher = strong core operations
Operating Margin	Operating Profit ÷ Revenue	Measures efficiency after core costs
Net Profit Margin	Net Profit ÷ Revenue	Measures overall profitability
EPS (Earnings Per Share)	Net Profit ÷ Total Shares	Earnings per share for investors
YoY Growth	(Current Revenue – Last Year) ÷ Last Year	Tracks growth trend year over year

🧠 How to Use a P&L Statement as an Investor

• Compare over time: Are revenues and profits growing steadily?

• Margins matter: A rising revenue with falling margin? Warning sign.

• Understand cost control: Are expenses growing faster than revenue?

• Link to other statements: Combine P&L with the balance sheet and cash flow to get the full picture.

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🧭 Final Thoughts from Moat In You

The P&L is the heartbeat of any company.
Reading it gives you insight into:

• Business health

• Scalability

• Profit trends

• Management efficiency

“Numbers don’t lie. If the P&L tells a strong story, it usually reflects in stock performance.”