The P&L Statement: How Companies Actually Make Money

By StockTrendz Editorial · Mar 14, 2026 · 10 min read · #Fundamental Analysis

The Profit & Loss (Income) Statement shows how much money a company made — and how efficiently. Day 14 breaks down every line item that matters.

The Income Statement Structure

Revenue flows down through deductions to reach Net Profit. Each intermediate profit line tells a different story about business quality.

The Journey of ₹100 RevenueRevenue → Gross Profit → EBITDA → EBIT → PBT → PAT (Net Profit)

Revenue (Top Line)

Total sales. For product companies: units × price. For service companies: contracts + retainers. Always check if revenue growth is organic or acquisition-driven.

Gross Profit

Gross Profit = Revenue − Cost of Goods Sold (COGS)

Gross Margin = Gross Profit / Revenue. High-quality businesses have gross margins of 50%+ (SaaS, pharma, consumer brands). Manufacturing is typically 20–35%.

EBITDA

EBITDA = Earnings Before Interest, Tax, Depreciation & Amortisation

Best measure of operating cash generation. Removes accounting noise. EBITDA margin is the #1 metric for comparing operating efficiency across companies.

PAT (Net Profit / Bottom Line)

What's left after everything — COGS, operating expenses, interest on debt, and taxes. This is what drives EPS and ultimately the stock price.

# P&L margin analysis
revenue = 100000  # crore
cogs    = 60000
opex    = 15000
depn    = 5000
interest = 3000
tax     = 4250  # ~25% effective tax rate

gross_profit = revenue - cogs
ebitda = gross_profit - opex
ebit   = ebitda - depn
pbt    = ebit - interest
pat    = pbt - tax

print(f"Gross Margin: {gross_profit/revenue*100:.1f}%")
print(f"EBITDA Margin: {ebitda/revenue*100:.1f}%")
print(f"PAT Margin: {pat/revenue*100:.1f}%")

Key Ratios from the P&L

Return on Equity (ROE): PAT / Shareholders' Equity. Target: >15% consistently
Return on Capital Employed (ROCE): EBIT / Capital Employed. Target: >15% and above cost of capital
Interest Coverage Ratio: EBIT / Interest Expense. Below 2x is a red flag

Today's Analysis

Find any company's last 5 years of P&L. Plot Revenue Growth %, EBITDA Margin, and PAT Margin annually. A company with expanding margins over time is compounding quality.

← Day 13 Day 14 / 30 Day 15 →