Profit and Loss Losses: Real Example with Explanation

Projecting profit and loss is a priority for any type of business. Although the main purpose of business is to earn profit, it is equally important to measure any loss that may occur. It is also important to prevent a situation that could be unprofitable and deadly for the company.

Therefore, projecting the profit or loss of your business is the best way to avoid any problems in all types of businesses. Do financial predictions Logic and math, or your predictions could end badly. Above all, follow these predictions to gauge the sales and check the increase or decrease in customers. In addition, it checks customer satisfaction. These projections can help detect certain problems with the products. You can correct it halfway.

Standard Profit and Loss Statement Format

It is standard for all businesses to have a Statement for Profit and Loss , referred to as an income statement. Also, the most common financial projection is pro-forma profit and loss.

This is mandatory for all companies. Projecting or not, there is the standard format to follow:

• The first line includes sales, which is how all revenues start, and is followed by direct costs and gross margin.
• Direct costs are those directly associated with the production of services or products. Gross margin is a total turnover achieved by the company.
• Next is operating expenses, which include rent, payroll, and marketing expenses.
• After that, EBITDA (earnings before interest and taxes, depreciation and amortization), which is better than traditional EBIT (earnings before interest and taxes) due to the addition of depreciation and amortization.
• The part under EBITDA consists of several parts, such as interest, taxes, depreciation, etc.
• Finally, the most important line at the end of the document is the net profit.

Whether your company’s shares are trading on the public market or you are a startup, the format for the screenings remains the same and always starts with sales. There may be some variation within companies depending on the type of detail they have done, but mostly the math remains the same.

So, follow the steps below:

• First, start with sales: calculate sales and direct costs from sales and forecast them based on previous sales performance. Also, you can calculate the gross margin for them.
• Calculate operating expenses from the expense budget. This budget mostly stays constant unless there are changes by company officials. Therefore, this part is not essential while forecasting.
• Near the end, calculate EBITDA by adding depreciation, interest, and taxes. This could differ by country as tax laws may vary.
• After that, calculate the net profit using all the values given above and additionally provided accordingly.
• Finally, in the last column, according to the net profit values, you will decide whether the company has profit or loss, forecasting the same for the next period. This will help you see if the profit is decreasing or increasing, or if the business is losing, or will have profits in the future.
• Real examples: Below are some real examples with explanations, including the points already given.

So it is clear from the sample above that there is profit and loss prediction for a few years till 2018. Moreover, you can see that the basic structure, like start with sales, qualified income here.

What else

Moreover, it is a more detailed income statement with many operating expenses. As already stated before, some differences may occur. Such detailed income statements are for large companies because of their huge customer base, thousands of people working for the company, and many projects to manage.

According to this example, you can see the whole format, followed by sale or income to net income. Income is followed by operating expenses and operating revenue. Some variation may occur in the details under operating expenses or operating income – in the words used to describe a specific word or in the type of tax system – but most importantly the format and math remains the same as already indicated. This example is a simple statement for each month and that makes it a statement for a year. Now, based on this year, more predictions should be made.

To sum up

Therefore, every business, regardless of its business type, deals with profit and loss projections. Second, the real examples should motivate you and make you understand the true importance of the projections. Startups or fairly large and established companies use such pro-forma income statements. Therefore, it is important to observe and look for changes. They could point to a loss and update strategies if necessary.

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