I just came across a topic that many people often confuse: the profit and loss statement, or what is called the P&L Statement. If you truly want to understand a business or an investment, you need to understand this one well.

A profit and loss statement is a document that shows how much revenue a business has, how much it spends, and how much profit or loss it has over a specified period. The basic principle is that revenue minus expenses equals profit or loss, and this is the fundamental formula you need to remember well.

When you read a P&L statement, pay attention to where each revenue item comes from. Sometimes a business’s main revenue is from selling products. Other times, it also has additional revenue from interest or leasing. As for expenses, you need to look at where the money goes—rent, salaries, advertising, utilities, and so on.

What’s important is to look at profit at each stage. There is gross profit, which indicates how much higher the product price is than the cost. There is operating profit, which shows which direction the business is moving in. And there is net profit, the final figure that tells you exactly how much profit remains after everything has been accounted for.

P&L statements come in two types: the Report Form, which is written in three sections—revenue, expenses, and net profit. It’s easy to read and helps you understand the overall picture well. The other is the Account Form, which is written in a T-shape: expenses are on the left and revenue is on the right. This format is more detailed and accepted by various organizations.

Why do you need to look at the profit and loss statement? Because it helps you see whether the business is efficient at making profits. It helps you analyze which parts of the expenses can be reduced to increase profits, and it supports better strategic planning for the business. Investors also use this statement to decide whether to invest in the business or not.

For example, if you look at the P&L statement of the Bank of Thailand for 2022, you will see that the bank has income from multiple sources, including interest income, profit from the sale of investments, fees, and gains from exchange rates. As for expenses, it has interest expenses, losses from the sale of investments, employee-related expenses, and other costs. After everything is deducted, the bank’s net profit is 191,077,634,015 baht.

When reading a P&L statement, first check what period it covers—monthly, quarterly, or yearly. Then look to see whether it shows a profit or a loss. Next, examine the sources of revenue and identify which expenses are the largest. This will help you understand the business situation more clearly.

But what you must remember is that investment decisions should not be based only on the P&L statement. You also need to consider other factors, such as the nature of the business, the management team, technology, and the market environment. All of these play roles in determining whether a business will grow or not. In short, if you want to understand a business and investing well, learn how to read the profit and loss statement, because it is one of the most important tools for analyzing what direction the business is heading.