Understanding Profit and Loss Statement

Profit and loss is among the three financial document that are necessary to be submitted by public companies. This document is often termed as PnL in common language. As the name suggest the document provides the details of income and expense incurred by a company during a specified duration. If the company incurs less expense than it earns, then the company is profitable company. The document is designed in such a way that all the income and expenses are written under some specific headers. This allow us to see which part of the overall process is doing well or needs improvement. A common investor can have a deeper insight basis this report.  Many important metrics/ratio can be calculated using PnL statement. The ratios are very helpful in comparing stocks and finding good investing opportunity.  Let's first try to go through each line items in the profit and loss statements and then explore the ratios derived from the PnL.