Reading Your Profit & Loss Statement
Most business owners glance at the bottom of the P&L, note the net income, and move on. That's leaving 90% of the value on the table. Here's how to actually read the statement.
The four sections
Revenue: total sales for the period.
Cost of Goods Sold (COGS) / Cost of Revenue: direct costs of producing what you sold.
Operating Expenses: overhead — rent, admin salaries, marketing, insurance, software.
Other Income/Expense: interest, gains/losses on asset sales, unusual items.
The four numbers that matter most
Gross Profit (Revenue – COGS): what's left after direct costs. Divide by revenue for gross margin %.
Operating Income (Gross Profit – Operating Expenses): what the core business earned.
Net Income: after interest and taxes — the bottom line.
EBITDA (net income + interest + tax + depreciation + amortization): the number lenders and buyers care about most.
What to compare against
This month vs last month: any anomalies?
This month vs same month last year: seasonal or trend changes?
Year-to-date vs budget or forecast: are you on track?
Your margins vs industry benchmarks: where are you weak?
Common patterns that require investigation
Revenue up but net income flat: costs are growing faster than sales.
Gross margin declining month over month: pricing weakness or cost inflation.
Operating expenses spiking: someone's spending without discipline.
Net income positive but cash going down: A/R growing, inventory building, or debt repayment (all balance sheet events).
Reporting formats
Percent of revenue on each line: makes comparison easy across periods.
Trailing 12 months: smooths seasonality.
By class/location/project: identifies which segments make or lose money.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.