What Does P/L Mean in Business?

by Katie Jensen

P/L, or P&L;, stands for profit and loss statement. It is one of three key financial statements for a business. The other two statements are the balance sheet and statement of cash flows. The P/L calculates the profit or loss for a time period, usually a month or year. It shows whether the business is generating cash and making money or losing money.


Revenue is where the profit and loss statement begins. Customers buy your product or services, and that sale is shown as revenue. Cash received from the sale of assets are not included as revenue, but do impact the P/L's bottom line. For example, if you sell a company truck, those proceeds are shown as the gain from a sale of assets.

Cost of Goods Sold

Your business buys inventory and materials to manufacture your product. Labor is required to assemble the product. These expenses are known as the cost of goods sold on the P/L. For analytical purposes cost of goods sold is expressed as a percentage of revenue. For example, if revenue is $1,500 for the month and the cost of goods sold is $800, the percentage would be 53 percent.

Gross Margin

When you subtract the cost of goods sold from revenue it equals the gross margin. Expressing the gross margin as a percentage of revenue allows you to compare how you are doing with previous periods, such as last month or last year. Different industries have different gross margins.

General and Administrative Expenses

General and administrative expenses include wages and salaries of all employees with the exception of the labor included in the cost of goods sold. Advertising, web hosting, rent, utilities, office supplies and telephone are other examples of general and administrative expenses.

Depreciation and Amortization

Depreciation is the cost of using an asset. When you buy a company truck and pay cash, the lump sum payment is not reflected in the P/L in the month you bought it, but spread out over the expected lifetime of the asset. If the truck is expected to have a useful life of five years, a simple way to calculate depreciation is to divide the original cost by 60 and show that figure as the monthly cost on the P/L. Amortization is calculated the same way, but applies to non-tangible assets such as intellectual property.


Revenue minus cost of goods sold minus general and administrative expenses equals gross profit, also called EBIDAT -- earnings before interest and depreciation. Subtract interest, depreciation and amortization to arrive at the net profit. Add or subtract the gain or loss generated from the sale of assets. Taxes are then calculated on this number and subtracted to arrive at the profit after taxes.

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