I just came across an interesting topic about reading a company’s financial statements—most investors focus on p&l.

In fact, p&l refers to the profit and loss statement. It is a tool that helps us understand whether a business makes a profit or incurs a loss, by taking total revenue and subtracting total expenses. If revenue is higher than expenses, the business earns a profit; but if expenses are higher, it results in a loss.

The benefit of understanding p&l is that it helps both management and investors get a clearer overall view of the financial position. Whether it’s seeing where revenue comes from or which parts of expenses can be reduced to increase profit.

When it comes to calculating p&l, the process is fairly straightforward. You start with sales and service revenue, then subtract the cost of sales to get gross profit. Next, subtract selling expenses and administrative expenses through several stages until you ultimately arrive at net profit.

Each level of profit has a different meaning. Gross profit tells us how much the business is able to set its product prices above costs. Operating profit shows which direction the business operations are heading. Net profit is the final result after everything has been deducted.

There are two formats for a profit and loss statement: the report format and the account format. The report format is arranged into 3 sections: revenue, expenses, and net profit or net loss. It is easy to understand and suitable for general reading. The account format is shown in a T-shape, with expenses on the left and revenue on the right. It is clearer and is accepted by various agencies.

To understand a profit and loss statement more effectively, you should start by checking the reporting period, because this statement may be prepared monthly, quarterly, or annually. Then look at whether the business is making a profit or incurring a loss. After that, study the sources of revenue and the different types of expenses.

The importance of p&l is that it helps measure the business’s financial performance. It indicates the ability to generate profits and provides information for analyzing the financial condition. In addition, it also helps with strategic planning and business development so the business can respond to market changes more effectively.

For example, in 2565 (2022), the Bank of Thailand had a net profit of 191,077,634,015 baht. Revenue came from 5 sources: interest income, net gains from the sale of investments, fees, gains from exchange rates, and other income. Expenses included interest expenses, losses from the sale of investments, employee-related expenses, and other expenses.

In summary, p&l is an important tool for evaluating a business’s performance. However, investment decisions should not be based on this document alone. You should also consider other factors, such as the nature of the business, the management team, and technical information that supports growth—before deciding to invest in any company.