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

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Definition : Also known as Income statement, is a financial statement which shows expenses and revenue of a company during a particular period, usually a fiscal quarter or year.
Read : What Is Balance Sheet ?
Income Statement helps to convey the status of a company i.e. Company is making profit or suffering losses. It is very important to read Income Statement of a company before investing, both of recent and past years.
Note : Revenue : Total amount received from sales of goods and services. Expenses : Total amount spend in producing final product or service.
Structure of P&L Statement  Income Statement is divided into Five main section - Net sales, Cost of Goods Sold, Gross Margin, Operating Expenses and Net Profit Before & After Income Tax (Or Net Loss in case of Loss).
Net Sales : It is the sum of Gross sales excluding its returns, allowances and discounts.Cost Of Goods Sold : Amount of money used to produce the final product. For example cost of inventory, merchandise purchased…

What Is Balance Sheet ?


Definition : It is a financial statement which represents assets, liabilities and shareholder’s equity of a company at a specified point in time. It shows Income and Expenditure of a company in that period.

Read : Terms You Need To Know Before Reading Balance Sheet

Balance sheet is divided into two parts : 

  • Assets
  • Liabilities + Shareholder’s equity



Assets 

Definition : Any tangible and intangible resource which can produce positive economic value for a company or individual is called assets. In simple words, any resources which helps you to earn money is called assets. It is placed on left-side of the balance sheet.

Example : Inventories and Equipment of a company, account receivables. If you a buy a house and allot it on rent to earn money then it is a asset to you.
Structure : 

Current assets : Current assets are the assets that a company holds for less than a year. It generally includes :

  • Account receivable ( within a year )
  • Cash and cash equivalents
  • Inventory
  • Short-term investments
  • Other current assets like closing stocks, short-term loan given, salaries advance to the employees, tax advance, etc.

Non-current assets : Non-current assets are the assets that a company holds for more than one year. In generally includes :

  • Long-term investments
  • Goodwill
  • Intangible assets
  • Properties and equipment
  • Other assets
Total assets = total value of asset i.e. current asset’s value + non-current asset’s value

Liabilities + Shareholder’s equity

Definition : Liabilities also refers to debt (loan). It is simply the amount of money owed by the company. And, Shareholder’s equity is the capital invested by company’s shareholders. Liabilities is placed on upper-right of the balance sheet whereas shareholder’s equity is placed on lower-right of balance sheet.

See also : Key Financial Ratios You Must Need To Know

Example : accounts payable, debt from banks, IPO, etc.

Structure : 

Current liabilities : Liabilities need to be paid within a year. It includes : 

  • Accounts payable
  • Taxes payable
  • Credit card debt
  • Short-term debt
  • Current portion of long-term debt 
  • Salaries payable
  • Taxes payable
Non-current liabilities : Long-term liabilities (more than a year)

  • Long-term debts
  • Other long-term liabilities
Shareholder’s equity : It includes :

  • Common stock
  • Preferred stock
  • Retained earnings
  • Additional paid in capital like dividends
  • Reserves and surplus
Total liabilities + shareholder’s equity = overall value of all three i.e. current liabilities + non-current liabilities + shareholder’s equity

Equation : 


  • Assets = liabilities + shareholder’s equity
Balance sheet is based on above equation. To create true picture balance sheet, value of asset side should be equal to value of liabilities side.

Companies reveals its financial statement on every quarter i.e. in every 3 months. Which means total 4 quarter for 12 months and one in the end of the financial year called annual financial statement which show data for overall a year. Same follows for the balance sheet.
Balance sheet helps to understand cash flow in a company. It plays very important role in fundamental stock analysis. It helps to analyze financial condition and health of  a company. Balance sheet is considered to take financial decisions in a company. Balance sheet plays a vital role for investors. You must need to analyse balance sheet both quarterly and annually before investing in a company.

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