PROFIT & LOSS ACCOUNT STATEMENT

The profit and loss statement is yet another indicator of fundamentals of any company.However, it is some what different from balance sheet.The balance sheets gives an account of total income and expenses of a company at a particular time but the profit and loss statement gives details of the profits or losses incurred over a period of time.The profits and loss account statements are revealed by the companies at the end of each quarter at the time of declaring quarter results.The details present in the statement for a particular quarter should be compared with the same quarter of the previous year.

As the balance sheets are divided into sources of funds and applications of funds more broadly, the profit and loss statements are also divided into four segments:

• Income
• Expenditure
• Profits before tax
• Profit appropriation

HOW TO INTERPRET THE NUMBERS IN PROFIT LOSS ACCOUNT STATEMENTS??

• The sales and the profits should be compared with the sales and profits of the same quarter in the previous year.The sales growth and the profits growth should be balanced.Sales growth along with the profits growth indicates the strength of operation management which is good for the long term growth.
• The growth of the other income is the healthy sign provided these income is generated by investments and not by selling assets.Hence the sources of other income should be watched closely as there is scope for manipulation in it.
• When there is increase in the cost of the production there should be increase in the sales too.Hence the company shows healthy signs if the proper balance is maintained between cost price and sales.
• High depreciation costs are good for the long term of any company although it reduces the profits of the company.