Profit and Loss Statement: Complete Guide to Income Statements in India
Learn how to read and analyze Profit and Loss statements in India. Understand revenue, expenses, EBITDA, PAT and key profitability metrics with Indian examples.
Suresh’s Restaurant Revelation
Suresh owned a popular restaurant in Bangalore. Tables were always full, and revenue was growing 20% yearly. He felt successful.
Then his accountant showed him the P&L statement.
Revenue: ₹1.2 Crore (up 20%) Net Profit: ₹3 Lakh (down 40%)
“But I’m so busy!” Suresh exclaimed.
The P&L revealed the truth:
- Food costs had increased 30%
- Staff costs doubled
- Rent increased 25%
- Revenue growth couldn’t cover expense growth
Busy doesn’t mean profitable. The P&L tells the real story.
What is a Profit and Loss Statement?
Definition
A Profit and Loss Statement (P&L), also called Income Statement or Statement of Profit and Loss, shows revenues, expenses, and resulting profit or loss over a specific period.
The Basic Formula
Revenue - Expenses = Profit (or Loss)
Time Period vs Point in Time
| Statement | Shows | Period |
|---|---|---|
| P&L Statement | Performance | Over a period (quarter/year) |
| Balance Sheet | Position | At a point in time |
P&L Structure (Indian Format)
Schedule III Format (Companies Act 2013)
Statement of Profit and Loss for the year ended 31st March 2024
(₹ in Lakhs)
────────────────────────────────────────────────────────────────────────
Particulars Note Current Year
────────────────────────────────────────────────────────────────────────
I. Revenue from Operations X X,XXX
II. Other Income X XXX
III. Total Revenue (I + II) X,XXX
IV. Expenses:
Cost of Materials Consumed X X,XXX
Purchases of Stock-in-Trade X XXX
Changes in Inventories X XXX
Employee Benefits Expense X X,XXX
Finance Costs X XXX
Depreciation and Amortization X XXX
Other Expenses X X,XXX
Total Expenses X,XXX
V. Profit Before Exceptional Items and Tax (III-IV) XXX
VI. Exceptional Items XXX
VII. Profit Before Tax (V + VI) XXX
VIII. Tax Expense:
- Current Tax XXX
- Deferred Tax XXX
IX. Profit for the Year (VII - VIII) XXX
X. Other Comprehensive Income XXX
XI. Total Comprehensive Income (IX + X) XXX
XII. Earnings Per Share (EPS):
Basic X.XX
Diluted X.XX
────────────────────────────────────────────────────────────────────────
Understanding Revenue
Revenue from Operations
Money earned from main business activities.
| Business Type | Revenue Source |
|---|---|
| Manufacturing | Sale of products |
| Services | Fee for services |
| Retail | Sale of goods |
| Software | License fees, subscriptions |
Other Income
Income from non-core activities.
| Type | Examples |
|---|---|
| Interest Income | On FDs, investments |
| Dividend Income | From investments |
| Rental Income | If not main business |
| Profit on Sale | Selling assets at gain |
| Foreign Exchange Gain | Currency movements |
Gross Revenue vs Net Revenue
| Term | Meaning |
|---|---|
| Gross Revenue | Total sales before adjustments |
| Net Revenue | After returns, discounts, allowances |
Net Revenue = Gross Revenue - Returns - Discounts - Allowances
Understanding Expenses
Cost of Goods Sold (COGS)
Direct costs of producing/purchasing goods sold.
| Component | Example |
|---|---|
| Raw Materials | Steel for manufacturing |
| Direct Labor | Factory worker wages |
| Manufacturing Overhead | Factory electricity |
| Purchase of Stock | Goods bought for resale |
Operating Expenses (OPEX)
Costs of running the business, not directly tied to production.
| Type | Examples |
|---|---|
| Employee Benefits | Salaries, PF, gratuity, bonus |
| Rent | Office, warehouse rent |
| Utilities | Electricity, water, internet |
| Marketing | Advertising, promotions |
| Travel | Business travel |
| Professional Fees | Legal, audit, consulting |
| Insurance | Business insurance |
| Administrative | Office supplies, subscriptions |
Finance Costs
Cost of borrowed money.
| Component | Source |
|---|---|
| Interest on Term Loans | Bank loans |
| Interest on Working Capital | CC/OD facility |
| Bank Charges | Processing fees |
| Debenture Interest | Corporate bonds |
Depreciation and Amortization
Non-cash expense representing asset value reduction.
| Term | Applies To |
|---|---|
| Depreciation | Tangible assets (machinery, building) |
| Amortization | Intangible assets (patents, software) |
Profit Levels Explained
The Profit Waterfall
Revenue
↓
(-) COGS
↓
Gross Profit
↓
(-) Operating Expenses
↓
Operating Profit (EBIT)
↓
(-) Interest
↓
Profit Before Tax (PBT)
↓
(-) Tax
↓
Net Profit (PAT)
Gross Profit
Gross Profit = Revenue - Cost of Goods Sold
What It Shows: Profitability of core product/service before operating costs.
Gross Margin:
Gross Margin = (Gross Profit / Revenue) × 100
EBITDA
EBITDA = Revenue - COGS - Operating Expenses (excluding D&A and Interest)
Or:
EBITDA = Operating Profit + Depreciation + Amortization
What It Shows: Operating performance before accounting and financing decisions.
Why It Matters: Comparable across companies with different depreciation policies and capital structures.
EBIT (Operating Profit)
EBIT = Revenue - All Operating Expenses (including D&A)
What It Shows: Profit from operations before interest and taxes.
Profit Before Tax (PBT)
PBT = EBIT - Finance Costs + Other Income
What It Shows: Profit before government takes its share.
Profit After Tax (PAT) / Net Profit
PAT = PBT - Tax Expense
What It Shows: Final profit available to shareholders.
Key Profitability Ratios
Margin Ratios
| Ratio | Formula | Good Range |
|---|---|---|
| Gross Margin | (Gross Profit / Revenue) × 100 | 20-50% (varies by industry) |
| EBITDA Margin | (EBITDA / Revenue) × 100 | 15-30% |
| Operating Margin | (EBIT / Revenue) × 100 | 10-25% |
| Net Profit Margin | (PAT / Revenue) × 100 | 8-20% |
Return Ratios (need Balance Sheet)
| Ratio | Formula | Good Range |
|---|---|---|
| ROE | (PAT / Shareholders’ Equity) × 100 | > 15% |
| ROA | (PAT / Total Assets) × 100 | > 8% |
| ROCE | (EBIT / Capital Employed) × 100 | > 12% |
Per Share Metrics
| Metric | Formula |
|---|---|
| EPS | PAT / Number of Shares |
| Dividend Per Share | Total Dividends / Number of Shares |
| Payout Ratio | Dividends / PAT |
Practical Example: ABC Manufacturing Ltd.
P&L Statement (₹ in Lakhs)
Revenue from Operations 1,000
Other Income 50
────────────────────────────────────────────────
Total Revenue 1,050
Expenses:
Cost of Materials 500
Employee Benefits 150
Finance Costs 30
Depreciation 50
Other Expenses 120
────────────────────────────────────────────────
Total Expenses 850
Profit Before Tax 200
Tax Expense (25%) 50
────────────────────────────────────────────────
Profit After Tax 150
────────────────────────────────────────────────
Margin Analysis
| Metric | Calculation | Result |
|---|---|---|
| Gross Profit | 1000 - 500 | ₹500 L |
| Gross Margin | 500/1000 × 100 | 50% |
| EBITDA | 150 + 30 + 50 | ₹230 L |
| EBITDA Margin | 230/1000 × 100 | 23% |
| Operating Profit | 150 + 30 | ₹180 L |
| Operating Margin | 180/1000 × 100 | 18% |
| Net Profit Margin | 150/1000 × 100 | 15% |
P&L Analysis: What to Look For
Revenue Analysis
| Question | What It Reveals |
|---|---|
| Is revenue growing? | Market demand, competitive position |
| Growth rate vs industry? | Market share trend |
| Revenue per unit? | Pricing power |
| Revenue concentration? | Customer dependency risk |
Margin Analysis
| Trend | Possible Reason |
|---|---|
| Gross margin improving | Better pricing, lower input costs |
| Gross margin declining | Competition, input inflation |
| EBITDA margin improving | Operating efficiency |
| EBITDA margin declining | Cost creep, investment in growth |
| Net margin volatile | Interest or tax changes |
Expense Analysis
| Watch For | Concern |
|---|---|
| Employee costs rising faster than revenue | Productivity issue |
| Other expenses growing fast | Hidden costs |
| Finance costs increasing | Rising debt |
| Depreciation spike | Major capex |
Industry-Specific P&L Characteristics
IT Services (TCS, Infosys)
| Characteristic | Reason |
|---|---|
| High gross margin (60%+) | No physical product |
| High employee cost (50-60% of revenue) | People-intensive |
| Low depreciation | Minimal physical assets |
| High net margin (20%+) | Scalable model |
Manufacturing (Tata Steel, Maruti)
| Characteristic | Reason |
|---|---|
| Lower gross margin (20-40%) | Material-heavy |
| Significant depreciation | Heavy assets |
| Higher finance costs | Capital-intensive |
| Lower net margin (5-15%) | Commodity business |
Banking (HDFC Bank)
| Characteristic | Reason |
|---|---|
| Interest income primary | Lending business |
| Interest expense major cost | Deposit cost |
| Net Interest Income (NII) key metric | Spread business |
| Provisioning for bad loans | Credit risk |
FMCG (HUL, ITC)
| Characteristic | Reason |
|---|---|
| High gross margin (50%+) | Brand pricing power |
| High A&P expense | Brand building |
| Stable margins | Defensive business |
| Consistent net margin | Predictable demand |
Quarter-on-Quarter (QoQ) vs Year-on-Year (YoY)
Why Both Matter
| Comparison | What It Shows |
|---|---|
| YoY | True growth (eliminates seasonality) |
| QoQ | Recent momentum |
Seasonality Examples
| Industry | Seasonal Pattern |
|---|---|
| FMCG | Q3 high (festive) |
| AC Manufacturers | Q1 high (summer) |
| Cement | Q4 high (construction) |
| IT | Q4 sometimes weak (furloughs) |
Always compare same quarter last year for accurate assessment.
Red Flags in P&L Statements
Warning Signs
| Red Flag | What It Could Mean |
|---|---|
| Revenue growing, profit falling | Margin compression |
| Other income > 20% of revenue | Core business weak |
| Exceptional items every quarter | Earnings manipulation |
| Employee costs declining sharply | Future capacity issues |
| Receivables growing faster than sales | Revenue recognition issues |
| Frequent accounting policy changes | Manipulation attempt |
Quality of Earnings Check
High Quality Earnings:
- Recurring revenue
- Cash-backed profit
- Sustainable margins
- Consistent accounting
Low Quality Earnings:
- One-time gains inflating profit
- Aggressive revenue recognition
- Unusual items every period
- Frequent policy changes
Standalone vs Consolidated P&L
What’s the Difference?
| Type | Covers |
|---|---|
| Standalone | Only parent company |
| Consolidated | Parent + all subsidiaries |
Which to Use?
| Use Consolidated When | Use Standalone When |
|---|---|
| Company has significant subsidiaries | Analyzing parent only |
| Evaluating total business | Dividend paying capacity |
| Making investment decisions | Regulatory requirements |
Example: Reliance Industries
| Metric | Standalone | Consolidated | Difference |
|---|---|---|---|
| Revenue | ₹X Cr | ₹2X Cr | Jio, Retail included |
| PAT | ₹Y Cr | ₹1.5Y Cr | Subsidiary profits |
P&L for Investors: Quick Checks
5-Minute P&L Check
- Revenue Growth: > 10% YoY? ✓
- Gross Margin: Stable or improving? ✓
- EBITDA Margin: > 15%? ✓
- Net Profit Growth: > Revenue growth? ✓
- Other Income: < 15% of revenue? ✓
- Exceptional Items: Zero or minimal? ✓
Comparing Two Companies
| Metric | Company A | Company B | Better |
|---|---|---|---|
| Revenue Growth | 15% | 25% | B |
| Gross Margin | 40% | 35% | A |
| Net Margin | 12% | 10% | A |
| Other Income % | 5% | 20% | A |
Verdict: Company B growing faster, but Company A has better quality earnings.
Common P&L Terms Explained
Operating Leverage
| Concept | Meaning |
|---|---|
| High Operating Leverage | High fixed costs, profits grow faster than sales |
| Low Operating Leverage | Variable costs dominate, profits grow with sales |
Financial Leverage
| Concept | Meaning |
|---|---|
| High Financial Leverage | High debt, interest magnifies profit swings |
| Low Financial Leverage | Low debt, stable profits |
Exceptional vs Extraordinary Items
| Type | Definition |
|---|---|
| Exceptional | Unusual but from normal operations (large write-off) |
| Extraordinary | Outside normal operations (rare) |
Tools for P&L Analysis
Free Resources
| Tool | Use |
|---|---|
| Screener.in | Easy P&L comparison |
| Moneycontrol | Quarterly results |
| Tijori Finance | Detailed financials |
| Company websites | Investor presentations |
What to Download
- Quarterly results (press release)
- Investor presentation
- Full annual report
- Analyst call transcript
Action Items
For Investors
- Compare P&L of target company for 5 years
- Calculate all margin ratios
- Compare with 2-3 peers
- Read management commentary on margins
- Check for exceptional items
- Verify revenue quality
For Business Owners
- Track monthly P&L
- Monitor margins by product/service
- Identify cost reduction opportunities
- Set margin targets
- Benchmark against competitors
Disclaimer
This guide is for educational purposes. P&L statements should be analyzed along with balance sheet and cash flow statements for complete picture. Historical profitability doesn’t guarantee future performance. Consult a qualified professional for investment decisions.
Summary
The P&L Statement shows:
- Revenue: What the company earned
- Expenses: What it cost to earn
- Profits: What’s left over
- Margins: Efficiency at each level
- Trends: Direction of business
Master P&L reading, and you’ll understand whether a business is truly successful—not just busy.
Social Media Posts
LinkedIn: “A restaurant owner was ‘successful’—tables always full, 20% revenue growth. Then his accountant showed the P&L. Net profit was DOWN 40%. Revenue isn’t profit. Busy isn’t profitable. The P&L tells the truth that feelings can’t. Every business owner should read their P&L monthly. #ProfitAndLoss #BusinessTips”
Twitter/X: “P&L in 30 seconds:
Revenue (-) COGS = Gross Profit (-) Operating Expenses = EBITDA (-) Depreciation = EBIT (-) Interest = PBT (-) Tax = PAT
Each level tells a different story. Master them all. #FinancialAnalysis”
Instagram: “Revenue vs Profit: Know the difference! 💰
Revenue = What you sold Gross Profit = After product costs EBITDA = After running costs Net Profit = What you actually keep
A ₹100 Cr company with 5% margin keeps ₹5 Cr A ₹50 Cr company with 20% margin keeps ₹10 Cr
Margins matter more than size! 📊
#ProfitAndLoss #BusinessBasics”