Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
The structure
A P&L flows downward: Revenue (your sales) − Cost of goods/services sold = Gross Profit; − operating expenses (rent, salaries, marketing) = Operating Profit (EBITDA/EBIT); − interest, depreciation and tax = Net Profit. Each level answers a different question about where money is made and spent.
Read ratios and trends, not just totals
The insight is in the margins and movement: gross margin % (is each sale profitable?), operating-expense ratio (is overhead under control?), and net margin — and crucially how these change month over month. A falling gross margin or creeping expense ratio is a warning the bottom line alone hides. Compare to budget and prior periods. Remember profit isn’t cash.
A worked example
Example: net profit looks steady, but reading the P&L shows gross margin slipped from 40% to 34% while a one-off cost fell — masking a real problem in pricing or input costs. Spotting that lets you act before it hits the bottom line. Reading the P&L this way is a core part of your monthly review. Our team can walk you through your P&L each month.