I just noticed that many people are interested in learning about reading financial statements, but actually the most important thing is understanding the P&L Statement or what we call the profit and loss statement because this document tells the entire story of the business—whether it is making a profit or incurring a loss.

The profit and loss statement operates on a simple principle: total revenue minus total expenses equals profit or loss. If you think of it this way, it's not difficult. But the problem is that revenue and expenses are not just single numbers; there are many items that need to be separated out.

Let's look at the P&L of the Bank of Thailand for the year 2022. You will see that revenue comes from various sources, such as interest income, gains from the sale of investments, fees, and others. Expenses are also diverse, including interest expenses, employee-related costs, and other expenses. When subtracting these, you get the net profit.

What’s interesting is that the P&L Statement not only shows whether the business is profitable but also tells other stories. It shows what gross profit is, indicating how much the business can set prices above costs. It also shows operating profit, which is an overall picture of business operations. Finally, it presents net profit, the ultimate result.

There are two common formats of profit and loss statements. The first is the report format, which displays from revenue down to net profit, making it easy to understand. The second is the account format, which presents a T-shape with expenses on the left and revenue on the right. Both formats are useful; they just differ in presentation style.

The important question is: why do we care so much about the profit and loss statement? It helps us clearly see the financial performance of the business. Investors and management use the P&L Statement to decide whether to invest or not, or how to adjust business strategies. If you see revenue increasing but profit not growing proportionally, it indicates rising expenses.

When reading a profit and loss statement, the first thing to check is whether it’s a monthly, quarterly, or annual report because that affects the analysis. Next, determine whether it shows a profit or a loss. If revenue exceeds expenses, there is a profit; if less, there is a loss. Then, dig deeper into where the revenue comes from and where the expenses go. This reveals the true story of the business.

In my opinion, understanding the P&L Statement is essential for anyone interested in investing. But don’t rely on it as the only indicator. Consider other factors as well, such as the quality of the management team, market conditions, and business trends. The profit and loss statement is just one part of the overall picture.