Right now, I see many people are interested in investing, but they still don’t understand a profit and loss statement. Let me share some knowledge I’ve learned.

A profit and loss statement—also called a P&L—is actually very important for anyone who wants to know how a business is performing. Whether you’re an investor or a business owner, I think this type of statement helps you understand whether the business is making a profit or suffering a loss, and it also helps you plan strategy.

Simply put, a profit and loss statement shows how much income a business has, how much it spends, and how much profit or loss it has in each accounting period. The basic formula is very simple: total revenue minus total expenses equals profit or loss.

Total revenue is the money the business receives from selling products or services. Total expenses are the money used to run the business, such as rent, advertising, wages, and so on.

What’s interesting here is that a profit and loss statement doesn’t show only the final result. It also shows profit at each step. Starting with gross profit, which is revenue minus cost of sales. Then you have operating profit, which comes after deducting general expenses. And up to net profit, which is the final result after deducting all expenses, including taxes.

Each stage of profit tells a different story. Gross profit helps you understand how well the business prices its products relative to costs. Operating profit helps show whether the management of various costs is heading in a good direction. And net profit is what truly reflects the overall picture.

I see that there are two common types of profit and loss statements that people use. The first is the report format, arranged from revenue down to net profit—it’s easy to read and understand quickly. The second is the account (T-account) format, arranged like a T, showing expenses on the left and income on the right. Both of these formats convey the same information, just with different layouts.

Why is a profit and loss statement important? Because it helps measure the business’s financial performance. Whether for executives or investors, everyone can use this information to analyze the financial situation and make investment decisions. In addition, it helps you see whether the business has enough ability to generate profit, and which parts of expenses should be improved.

When reading a profit and loss statement, make sure you check which period it covers, because it may be monthly, quarterly, or yearly. For example, the profit and loss statement of the Bank of Thailand in 2565 shows performance from the beginning of the year until the end of the year.

Check whether it shows profit or loss. If revenue is higher than expenses, that is profit; if it’s lower, that is a loss. For example, the Bank of Thailand had net profit of over 191 พันล้านบาท in that year.

Another important thing is to look at the sources of income—whether they come from sales, interest, fees, or other income—and also review the expenses, including what expenses are involved. From this, you can manage expenses to reduce costs and increase profit.

In summary, the profit and loss statement is a very important tool for analyzing a business. If you understand it well, it can help you make smarter investment decisions. But don’t forget that you shouldn’t consider only the profit and loss statement; you should also look at other factors, such as the nature of the business, the management team, and other technical information.