Learn from Profit and Loss Report

What You Can Learn By Looking at Profit & Loss Reports

One of the advantages of working with an experienced accounting team is that you have access to detailed financial reports about your company. This information is invaluable to help you know the current financial situation of your business, helping you to make better decisions on a daily basis.

The Profit & Loss statement is a report commonly used to assess business financial health. Here are a few things you should be looking for in this report:

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Is Your Company Profitable?

It is fun to see the overall revenue that was brought in during the month or year, but this number doesn’t mean anything if your expenses are higher than the top-line revenue. Look at the bottom of the statement to see the final numbers after the expenses and costs are calculated into the numbers.

Do you have any retained earnings that can be used to reinvest in the company? If there is nothing left over or your business is in debt, then you should reevaluate expenses and income. A few tweaks in your systems can make a big difference to free up cash flow and improve the profitability of the company.

What are the Gross Margins of Your Product Sales?

Once you have accounted for the direct costs associated with the production of your products or services, how much of a margin is left over? For example, if you sell $10,000 worth of products and it cost $7,500 to make the products, then your gross profit margin is 25%.

When there are slim margins, it could spell out trouble for the future. In this scenario, look for ways to reduce the cost of manufacturing or increase the product price. Make sure that you compare the prices of competitors when you are deciding on the price of your product.

Overall Value of Your Company

A P&L report can provide important information about the value of your company. Even if you aren’t planning to sell right away, keeping an eye on this number will help you know what to expect in the future. This information can also help you to see if you are credit worthy, which will give you the advantage of gaining more credit to invest in your company if needed.

Are you interested in having an accounting team that can keep you informed about the financial health of your company? Contact us at Easier Accounting for details about the accounting and bookkeeping services that we offer: (888) 620-0770

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