Accounting 101: Profit & Loss

Part of being diligent with detail is understanding each and every line of detail. Understanding each line means you can pinpoint problems and create surgical solutions. For example, if you find that gross profit is much lower in one region than the others, you know that you have to investigate COGS in that region. I realise that this is topic is Accounting 101, but like many things, it’s worth being said for the reminder. So without further adieu, here’s how a dollar of revenue turns into less than a dollar of NPAT:

Accounting 101

Revenue (or sales or turnover or the “top line”)
minus Cost of Goods Sold (or COGS or variable costs)
= Gross Profit (or GP)
minus Expenses (or overheads or operating costs or fixed costs)
= Earnings before Interest, Tax, Depreciation & Amortization (or EBITDA)
minus Depreciation & Amortization
= Operating Profit (or OP)
plus/minus abnormal revenue/costs
= Earnings before Interest & Tax (or EBIT)
minus Interest of debt
= Net Profit before Tax (or NPBT)
minus Taxation
= Net Profit after Tax (or NPAT or NP or the “bottom line”)