• Jearn Xiu Lee

Statement of Profit & Loss Explained!

A simplified explanation on one of the most crucial financial statement - Profit & Loss.

Figure 1: Top Glove's Statement of Profit or loss for year ended 2019

Have you ever wanted to know how financially healthy a company is? And never really understood what those long lines of words and numbers mean? Fear no more! Today I will be explaining one of the financial statement that are published by the companies and briefly explain it so you get the gist of it. In this article, we will look into the Profit and Loss statement which is generally known as the P&L statement. As the name suggested, this statement will tell you the profit and losses a company made in that year. It is important as this will show if the company’s operation is making money.

To make it easy to understand, I will cut them up in segment so you have a clear view on which part I am referring to. Firstly, not every financial statement start from January. For this statement it is for the year ending 31 August 2019, this tells us that this financial statement hold information from 1st September 2018 – 31st August 2019. Without any explanation, the year is just to indicate the year. They will normally put the previous year as well for an easy comparison. Above the year, there is the heading group and company. Since this company is big, there are multiple subsidiaries which is all under a group. Last but not least, the note is like a reference where you can find a more detailed explanation.

A basic business calculation, revenue - cost of sales = profit except that this is gross profit as there are still other indirect expenses to be deducted before net profit. The cost of sales here would be referring to the production cost such as materials, direct labour and other direct cost. In accounting standard, numbers in bracket stands for negative values. As we can see, there is a number 8 in the note column, this indicates that there is a more detailed breakdown of revenue stream. Below is the copy of the note which can be found towards the end of the report.

Below the gross profit, there will be other item of income which can just be any other form of income that is not directly related to the operation. What’s normally in interest income could range from bank interest, loan receivable interest, or any other asset that produces interest whereas other income consists of anything else from interest income such as rental, foreign exchange and all other income.

Just like the start, revenue (income) – cost of sales (expenses), expenses will be after income hence other expense is below other income. Distribution and selling costs refer to any cost incurred while sending or selling goods from the producer or factory to wholesaler, stores or anywhere else. As we have explained previously, direct labour cost are incurred in cost of sales. In a company there are also workers at the back office, their salary and other general expenses are compiled in administrative and general expenses. Lastly, as a large company, there is always lending and borrowing. Lending produce interest income as mention before and here we have borrowing cost which is under finance costs.

After adding and subtracting from the gross profit we will be left with profit before tax. This will be the last step before getting the final amount which is profit net of tax. Simply subtract the tax amount, by looking at note 14 you can look at a more detailed tax.

The last thing that is in this page would be the profit attribution. The final figure of profit net of tax should be same as the profit attributable to. Since that is just to show where the profit is being split to. Owners of the parent company refers to the shareholder whereas non-controlling interests can be considered as those without the say in the company. In this report, they have also given us a calculated earning per share. This can be done by taking profit net of tax divided by the total number of shares available.

There you have it, the statement of profit and loss. It isn’t as hard as you first thought to be right? If you are wondering why this doesn’t look like what you have learned during high school. Yes, it doesn’t look the same but it is the same except that those details under income and expenses you wrote last time are in notes section. If you were to look at the notes section, it will more complicated than you think. Hence making it as simplified as possible would be great and those who would want detailed explanation can have a look for themselves. Since this company is listed in Malaysia, you can find this company information in Bursa's website. Same goes for other country, London stock can be found in LSE, Germany in Frankfurt and etc.

I hope this might help you out in the future when looking at a P&L statement. More article on statements such as cash flow, financial position will be out soon. Do subscribe to stay tune for it. If you are interested in more finance related blog, click here. To learn more about other subjects, click here. To receive notifications when there’s an article, subscribe below!


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