How to read a P&L statement?

5 min readDec 12, 2022

There are three primary financial statements that a company showcases to represent its performance:
1. The Profit and Loss statement
2. The Balance Sheet
3. The Cash flow statement

A profit and loss statement (P&L) is a financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a given period of time. It is also popularly referred to as the P&L statement, Income Statement, Statement of Operations, and Statement of Earnings.

The P&L statement reports information on the following:
1. The revenue of the company for the given period (yearly or quarterly)
2. The expenses incurred to generate the revenues
3. Tax and depreciation
4. The earnings per share number

To better understand this concept, we will consider Tata Motors P&L statement for FY 2021–2022. The statement can be downloaded from this link.

1. Header

The header clearly states:
1. The period of the statement — In this case the year ending March 31, 2022, hence this is an annual statement and not a quarterly statement.
2. The currency unit — Here it is in Crore rupees. It is up to the company’s discretion to decide which unit they would prefer to express their numbers in.
3. By default, when companies report the numbers in the financial statement, they present the current year's number on the leftmost column and the previous year's number to the right. In this case, the numbers are for FY21–22 (latest) and FY20–21 (previous).

2. Revenue

When analysts talk about ‘the top line of a company’, they are referring to the revenue side of the P&L statement. The revenue side is the first set of numbers the company presents in the P&L.

The first line item Revenue states the Rupee value of all the product sales the company has sold during the FY. Tata Motors sold products worth Rs. 46880.97 Cr in FY21–22 and Rs. 29769.07 Cr in the previous FY.

The company also includes other operating revenue at Rs. 382.71 Cr. This could be revenues through the sale of products or services that is incidental to the company’s core operations.

Other Income which is Rs. 659.91 Cr includes income that is not related to the company’s main business (like interest on bank deposits, dividends, etc).

So adding up all the different revenue components, the company has a total revenue of Rs. 47923.59 Cr for FY21–22.

3. Expenses

As we can see from the above image, expenses are classified according to their function.

The cost of materials consumed includes the cost of the raw materials required to manufacture the finished products. This is the company’s largest expense which is Rs. 31693.11 Cr for FY21–22.

The purchases of products for sale include all the purchases of finished goods that the company buys towards conducting its business.

The changes in inventories of finished goods include the cost of manufacturing goods incurred by the company in the past, but those goods were sold in the current year.

The employee benefits expense includes the cost spent toward the employee's salary and PF.

Finance cost includes interest paid to banks/private lenders on the borrowed funds.

Depreciation and amortization expense: An asset can be tangible(laptop, printer, etc) or intangible(brand value, trademark, patent, etc). An asset becomes less valuable over its useful life(the period during which an asset can provide economic benefit to the company). This concept of decreasing value over time is known as depreciation for tangible assets and amortization for intangible assets. Eg: A small-scale company requires machinery which costs Rs. 1 lakh and the useful life of this tangible asset is 5 years. So the company will state the depreciating cost as 1,00,000/5 = 20,000 Rs.

Other expenses include manufacturing, selling, administrative and other expenses cost.

The total expense of Tata motors for FY21–22 was Rs. 49647.05 Cr.

4. Profit/(loss) before tax

Profit Before Tax also known as PBT refers to the net operating income after deducting operating expenses but before deducting taxes and interest.

Exceptional/Extraordinary items are expenses occurring at one odd time for the company, and the company does not foresee this as a recurring expense.

As seen from the above image, Tata Motors had a PBT of negative Rs. 1640.05 CR for FY21–22.

5. Net Profit/(loss) after taxes

After-tax, the net operating profit is defined as the company’s operating profit after deducting its tax liability. This is the last part of the P&L statement, the profit after tax, and is also called the bottom line of the P&L statement.