Profit and loss statement (P&L)

The income statement (GuV, Gewinn- und Verlustrechnung, profit and loss account) shows how much a company earned and spent in a period – and whether it ends up with a profit or loss.

Simplified structure:

• Revenue: what the company sold
• − Cost of sales: materials, production wages
• = Gross profit
• − Selling costs: marketing, sales staff
• − Administrative costs: office, IT, management
• = Operating result (EBIT)
• ± Net interest: interest income minus interest expenses
• = Earnings before taxes (EBT)
• − Taxes
• = Net profit / net loss for the year

Two methods (German Commercial Code, HGB):

• Nature of expense method: all costs broken down by type (materials, personnel, depreciation). Most common in Germany
• Cost of sales method: costs broken down by function (production, sales, administration). Common internationally (IFRS)

For private investors:

The income statement shows you:

• Is revenue growing? (growth)
• Is the margin rising? (profitability)
• How high is the tax rate?
• Are there one-off effects? (special write-downs, restructurings)