Chapter 2 of 5

The profit and loss statement

8 min read

The profit and loss statement, also called the income statement, shows what a company earned and spent over a period, usually a quarter or a year. Read it from top to bottom.

A simplified P&L (₹ crore, illustrative)

Revenue from sales: 1,000.
Operating costs: 800, leaving EBITDA of 200, a 20% EBITDA margin.
Depreciation 40 and interest 30, leaving profit before tax of 130.
Tax at 25%: 32.5, leaving profit after tax of 97.5, a net margin of 9.75%.
With 10 crore shares, earnings per share (EPS) is ₹9.75.

What each line tells you

Revenue: how big the business is and whether it is growing.
EBITDA: operating profit before depreciation, interest and tax, a view of core operations.
Depreciation: the gradual cost of wearing-out assets.
Interest: the cost of borrowing. A heavily indebted company pays more here.
Profit after tax: what belongs to shareholders.
EPS: profit per share, the figure behind the price-to-earnings ratio.

What to look for

Revenue growth over five or more years, not one quarter.
Margins that are stable or improving.
One-off items that inflate or depress a single year's profit.
Profit growth that is backed by sales growth, not just cost cutting.

Key takeaways

Read the P&L from revenue down to EPS.
Margins matter as much as growth.
Look for consistency across years and strip out one-offs.

This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.