How to Read a P&L

From topline to bottomline.

The Profit & Loss statement (income statement) shows how a company turned sales into profit over a period. It reads top to bottom, each line subtracting a type of cost. Revenue (topline) Total sales in the period. − Operating costs Cost of goods, salaries, running the business. = Operating profit Profit from core operations, before interest and tax. − Interest Cost of debt. − Tax Government's share. = Net profit (bottomline) What's left for shareholders. Revenue Rs 1,000 − costs Rs 600 = operating profit Rs 400. Minus interest Rs 100 and tax Rs 90 = net profit Rs 210. Read the P&L across several years. You want revenue and net profit both rising, with margins steady or improving.

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Statements.