Explaining Profit and Loss Reports and Profit Share
To explain a profit and loss report, you’ll need to break it down into key components. Start by understanding the top line: revenue, which represents the total income generated from sales or services. Subtract the cost of goods sold (COGS) to determine gross profit. This shows the profit before considering operating expenses like salaries, rent, and utilities. Next, subtract these operating expenses to find operating income. Factor in non-operating income or expenses (like interest earned or paid) to arrive at net income before taxes. Finally, deduct taxes to calculate net income, the bottom line that indicates the company’s overall profitability. By analyzing these components, you can assess a company’s financial health and identify areas for improvement.
How to Calculate Profit Share:
- Determine Current Month’s Net Income: Calculate the actual profit generated in the current month, excluding any contributions from the previous month’s profit share.
- Add in Last Month’s Profit Share to Net Income: Take the previous month’s profit share and add the two amounts
- Multiply the total net income with the calculated profit share percentage. This will give you the total net income for the current month.
Example: If the current month’s net income is $5,000 and the previous month’s profit share was $1,000, add them together for $6,000 and multiply it by profit share percentage. Example of 0.15 (15% expressed as a decimal)
- Total Net Income = $5,000 + $1,000 = $6,000
- $6,000 * .15 = $900 in profit share