Profit & loss: Sales, margins and what is left as profit
A plain-language guide to a company’s P&L: sales, expenses, operating margin and net profit, and why growing sales with shrinking margins is a warning.
The profit & loss statement shows how a company makes money
| Measure | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Salesmoney from customers, ₹ crore | 800 | 960 | 1,150 | 1,380 | 1,650 |
| Expensesrunning the business, ₹ crore | 656 | 797 | 977 | 1,214 | 1,501 |
| Operating profitsales minus expenses, ₹ crore | 144 | 163 | 173 | 166 | 149 |
| Operating marginoperating profit ÷ sales | 18.0% | 17.0% | 15.0% | 12.0% | 9.0% |
| Net profitleft after interest and tax, ₹ crore | 90 | 98 | 100 | 92 | 78 |
Every year a company reports what it sold, what it spent, and what was left. Read it top to bottom: sales come in, expenses go out, and what remains (after interest and tax) is net profit.
What to look for
- Sales: money from customers. Is it growing?
- Operating margin: how many paise of every rupee of sales are left after running costs.
- Net profit: what finally belongs to shareholders.
Growing sales are good only if profit grows with them. Watch the margin.
Sales doubled in four years, but net profit fell. What explains it?
- Expenses grew faster than sales, so the margin shrank
- The company sold fewer products
- Net profit always lags sales by a few years
Show the answer
Expenses grew faster than sales, so the margin shrank. Operating margin fell from 18% to 9%. The company sold more, but each rupee of sales left half as much profit behind.
What the numbers showed
Operating margin dropped every year, from 18% to 9%. Rising costs or price cuts were eating the business from the inside.
Growing sales are good only if profit grows with them. Watch the margin.
Practise Profit & loss, free
Reading about it is step one. In MarketSeekho you look at a company’s numbers, make a call, say why, and get graded on your reasoning, not luck.
Common questions
What is Profit & loss?
Every year a company reports what it sold, what it spent, and what was left. Read it top to bottom: sales come in, expenses go out, and what remains (after interest and tax) is net profit.
What should I look for in profit & loss?
Sales: money from customers. Is it growing? Operating margin: how many paise of every rupee of sales are left after running costs. Net profit: what finally belongs to shareholders.
Sales doubled in four years, but net profit fell. What explains it?
Expenses grew faster than sales, so the margin shrank. Operating margin fell from 18% to 9%. The company sold more, but each rupee of sales left half as much profit behind.
How can I practise profit & loss for free?
MarketSeekho has a free four-page chapter on Profit & loss (learn, answer a question, spot it in a company’s numbers, then make a call) and an unlimited Better business practice game graded on your reasoning. No sign-up or money needed.