The Profit and Loss Statement

As the end of the year approaches, small business owners look for ways to become more profitable in the coming year. Retailers closely monitor their profit and loss (P&L) statement to evaluate the financial goals they need to reach in order to make a profit. A P&L statement can shed light on whether a business has the capital to start and sustain itself and where a retailer might reduce its costs or increase sales to reach the projected net profit. P &L statements are also developed to guide retailers toward their financial mark; if a company is off the mark a retailer can determine where to adjust to meet the mark, keeping net profits in the black.

P&L Significance

A profit and loss or income statement is an important tool for retail success. The significance of a P&L statement is to help retailers develop a sales targets to reach, price goods at the appropriate price and determine if their total operating expenses are too high relative to sales and need to be adjusted. It is a check and balance system for a business to account for all money spent, made and owed which keeps a business on track to reach its projected financial goals.

Each portion of the P&L statement plays an important role in the overall picture of a companies profitability. Net Sales is driven by the amount of product a retailer sells. However, net sales has to account for any discount, sales returns and sales allowances to calculate an accurate dollar figure.

The cost of goods directly affect the overall net sales of the retailer and is usually the largest expense on a P&L statement. Cost of goods (COG) accounts for the raw goods and labor combined to produce an item. One retailer might sell only fifty units a year compared to another retailer ...

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...ime avoid bankruptcy. Both the P&L statement and the balance sheet give a retailer an objective view of business activities they might not otherwise see.

The use of a P&L and balance sheet provides opportunity for a retailer to meet goals, project growth and manage money by analyzing the data.

Works Cited

http://smallbusiness.chron.com/significance-gross-profit-margin-4132.html

Bigger Pockets., (2009).Importance of operating expenses & operating expense ratios. Retrieved from http://www.biggerpockets.com/blogs/1272/blog_posts/23423-importance-of-operating-expenses-and-operating-expense-ratios

Berman, B., & Evans, J.R. (2013). Retail management: A strategic approach (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Small Business Development., (2013). Retrieved from http://www.smallbusiness.wa.gov.au/understanding-profit-loss-statements/