How to Read a Profit and Loss Statement

A basic understanding and ability to analyze a company's profit and loss statement, also known as an income statement, is an essential skill for any investor. The profit and loss statement is an overview of how much revenue the company generated, all the business expenses, other gains or losses, and how much profit (or loss) it made over a specified time frame. It also breaks down key expenses that may be pertinent to investors.

You can find a company's profit and loss statement in its quarterly and annual reports filed with the U.S. Securities and Exchange Commission (SEC). Here's what stock market beginners need to know to make sense of all the numbers.

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SEC (Securities and Exchange Commission)

The SEC, or Securities and Exchange Commission, is an independent government agency responsible for ensuring the integrity of the capital markets in the United States.

A person marking a profit and loss statement with a pen. — Image source: Getty Images.

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Fiscal Quarter

In the financial world, a quarter refers to a three-month period used for reporting and recording financial performance, typically representing one-fourth of a company's fiscal year.

The details of a profit and loss statement may vary from company to company, but they all follow the same basic outline. At the top of the statement, the company shows how much revenue it generated during the statement period. Companies with several business segments may break out revenue for each separate division.

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Revenue

Revenue is a business’s gross income or the amount of money it brings in from regular operations before costs are considered.

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Dice spelling out Buy, Sell, Loss, Profits, and more. — Image source: Getty Images.

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Data source: Apple. Table by author.
Period	12 months ending 9/25/2021	Notes
Net sales		Apple breaks out two segments.
Products	$297,392
Services	$68,425
Total net sales	$365,817	Total revenue, or net sales.
Cost of sales
Products	$192,266
Services	$20,715
Total cost of sales	$212,981
Operating expenses
Research and development	$21,914
Selling, general, and administrative	$21,973
Total operating expenses	$43,887
Other income	$258	One-time gains (or losses).
Income tax provisions	$14,527	An example of accrual accounting.
Net income	$94,680

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A meter illustration showing the needle at high margin. — Image source: Getty Images.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.