Guides · Finance
How to read a Profit & Loss statement
Revenue, cost of goods sold, gross vs net profit, expenses — what each line of a P&L means and how to actually use it to run your business. A plain-English guide for SMEs.
What a P&L shows
A Profit & Loss statement (also called an income statement) shows whether you made money over a period — a month, a quarter or a year. In one line: revenue minus expenses equals profit. It answers 'did the business make a profit, and where did the money go?'.
It's different from a balance sheet, which is a snapshot of what you own and owe at a single point in time. The P&L is the movie; the balance sheet is the photo.
The key lines
Revenue (or sales): the money you earned from selling, before any costs. Cost of goods sold (COGS): what those sales directly cost you — stock, materials, direct labour. Gross profit: revenue minus COGS, i.e. what's left after the direct cost of what you sold. Operating expenses: the running costs that aren't tied to a single sale — rent, salaries, marketing, software, utilities. Net profit: what's left after all expenses. This is the bottom line.
Gross profit vs net profit
Gross profit tells you whether your pricing and direct costs work: if it's thin, you're not charging enough or your materials cost too much. Net profit tells you whether the whole business works after overheads.
A business can have healthy gross profit but negative net profit if its rent, salaries and other overheads are too high. Watch both.
How to actually use it
Look at margins, not just totals. Gross margin (gross profit ÷ revenue) and net margin (net profit ÷ revenue) tell you how much of each ringgit you keep. Compare month to month to spot trends — rising costs, slipping margins, a seasonal dip.
Use it to make decisions: which products actually make money, whether a price rise is needed, where costs are creeping. Software that computes the P&L live from your entries means you're always looking at current numbers, not a stale export.
Questions, answered
What's the difference between a P&L and a balance sheet?+
A P&L shows performance over a period (revenue, expenses, profit). A balance sheet is a snapshot at a point in time (assets, liabilities, equity). You need both to understand a business.
What is gross profit?+
Gross profit is revenue minus the cost of goods sold — what's left after the direct cost of what you sold, before overheads like rent and salaries.
What is a good net profit margin?+
It varies a lot by industry, so compare against your own trend and your sector rather than a single number. The point is that net margin is positive and stable or improving.
Does Orbit Finance produce a P&L automatically?+
Yes — Orbit Finance computes your profit & loss, balance sheet and cash flow live from your entries, so the statement is always current, not a stale export.
See your P&L update live
Orbit Finance computes profit & loss, balance sheet and cash flow from your entries. One-time RM 100.00.