THE MEANING OF P&L (ENGLISH VERSION)
Autor: Luiz Teixeira | Publicado: 2011-07-04T23:00:00-03:00



P&amp;LJanFebMar
Sales3,000 3,036 3,040 

Volume&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,000 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,200 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,900 

Price (Average)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.50 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.38 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.60 
Factory Costs1,650 1,763 1,619 

Raw Material&nbsp;1,000.00 &nbsp;1,100.00 &nbsp;&nbsp;&nbsp; 950.00 

Labor&nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 500.00 

Electricity&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50.00 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 53.00 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 49.00 

Maintenance&nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 110.00 &nbsp;&nbsp;&nbsp; 120.00 
Gross Margin1,350 1,273 1,421 

&nbsp; % of Sales45%42%47%
Administrative Costs850 860 860 

Sales Force&nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 510.00 &nbsp;&nbsp;&nbsp; 510.00 

Advertising&nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 100.00 

Staff&nbsp;&nbsp;&nbsp; 250.00 &nbsp;&nbsp;&nbsp; 250.00 &nbsp;&nbsp;&nbsp; 250.00 
Net Income500 413 561 

&nbsp; % of Sales17%14%18%


I remember, some years ago, when a worksheet like the one above was shown to us in the financial management class in MBA school. General astonishment! The truth is that the marketer is often not used to dealing with numbers, and when it's really needed, the shock is unavoidable.The spreadsheet above is the famous P &amp; L spreadsheet, and means "Profits &amp; Losses". This is a report that states the financial health of a product, product line, department, or even a company as a whole (for this article, we will use the generic term "business unit").With this report, it is possible to know what is selling, administrative expenses, costs, investments and everything else that may impact the business unit profitability.In order to better analyze the expenses, we must understand the P&amp;L structure, which is based on three interlinked pillars: Sales, Cost and Profit. When a business unit sell its products and take down your costs, have your profit. This is the beginning of the P &amp; L.The calculation below may seem simple (and it really is), but is crucial for managing the P &amp; L. We can see, from its analysis, there are two ways to increase profit: increase sales or decrease costs.


Sales (eg: $3,000)
-
Cost (eg: $1,650)
=
Gross Margin (eg: $1,350)





By "Sales", we should consider all direct revenues (Local Sales, Export and Public Bids) from its activity, always indicated in monetary value. This value is found by multiplying the total volume (units) and the selling price. Changing our formula, we get:

Volume in units (2,000)
*
Price ($1.50)
=
$3.000
-
Cost ($1,650)
=
Gross Margin ($1,350)


The "cost" should be understood as all costs related to the manufacturing activity. It needs to consider only costs directly related to manufacturing, as raw material, Labor, electricity, maintenance, and others. Do not include costs not related to manufacturing (such as advertising, for example). Our formula, then, shows these costs:

Volume in units (2,000)
*
Price ($1.50)
=
$3,000
-
Raw Material ($1,000)
+
Labor ($500)
+
Electricity ($50)
+
Maintenance ($100)
+
Other factory costs
=
$1,650
=
Gross Margin ($1,350)


Thus, we have the "Gross Margin" (also called "gross profit") being generated from the subtraction of various elements. Use the Gross Margin to pay investments, Sales Force salaries, Staff salaries, and others. In order to facilitate the analisys, we can put the same equation like below:



P&amp;LJan
Total Sales3,000 

Volume&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,000 

Price (Average)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.50 
Factory Costs1,650 

Raw Materials&nbsp;1,000 

Labor&nbsp;&nbsp;&nbsp; 500 

Electricity&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50 

Maintenance&nbsp;&nbsp;&nbsp; 100 
Gross Margin1.350 

Like you can see, our spreadsheet is getting the same way as the P&amp;L. From this point on, we need to include costs not related to manufacturing, like investments in advertising, sales, logistics, engineering, legal, purchasing, etc.. All these costs will be charged from Gross Margin. After all charged, the full P &amp; L is completed as follows:

P&amp;LJanFebMar
Sales3,000 3,036 3,040 

Volume&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,000 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2,200 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,900 

Price (Average)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.50 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.38 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1.60 
Factory Costs1,650 1,763 1,619 

Raw Material&nbsp;1,000.00 &nbsp;1,100.00 &nbsp;&nbsp;&nbsp; 950.00 

Labor&nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 500.00 

Electricity&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 50.00 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 53.00 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 49.00 

Maintenance&nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 110.00 &nbsp;&nbsp;&nbsp; 120.00 
Gross Margin1,350 1,273 1,421 

&nbsp; % of Sales45%42%47%
Administrative Costs850 860 860 

Sales Force&nbsp;&nbsp;&nbsp; 500.00 &nbsp;&nbsp;&nbsp; 510.00 &nbsp;&nbsp;&nbsp; 510.00 

Advertising&nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 100.00 &nbsp;&nbsp;&nbsp; 100.00 

Staff&nbsp;&nbsp;&nbsp; 250.00 &nbsp;&nbsp;&nbsp; 250.00 &nbsp;&nbsp;&nbsp; 250.00 
Net Income500 413 561 

&nbsp; % of Sales17%14%18%
&nbsp;There are many variables to be addressed when managing P &amp; L, but a good understanding of its structure helps in identifying opportunities. We can list several examples of using the P &amp; L for planning activities and strategies, however you, dear reader, may remember any situation that occurred with you when you were managing results, right? Share your experience with us! 
Best Regards,Luiz Teixeira