profit and loss statement (P&L)

A set of accounts, usually prepared annually, which depict a company's trading performance and are normally read in conjunction with the balance sheet and cash flow data. The profit and loss account can broadly be shown as follows:

• Turnover (sales) less manufacturing costs (or cost of sales if for example a retailing company) = gross profit or loss
• Gross profit plus any non-trading income less operating costs = operating profit
• Operating profit less interest payments on bank loans or loan stock = profit before tax (pre tax profit)
• Pre-tax profit, less tax = net profit after tax

Part of the net profit after tax may be used to pay a dividend with the balance being retained within the business for future investment.