How to explain a Profit & Loss
During a Thanksgiving chat with family and friends, how would you explain the P&L of a company you are interested in? You do want to impress your uncle, who works as a banker at Goldman Sachs, but don’t want to bore the other people sitting at the table.
To explain it, try to split the P&L into the 3 main segments: sales, cost of sales, and expenses. The difference is Net Income. Use the % of sales ratios in your discussion.
See the short video on how to read a P&L here:
My Mother is an Architect. She likes to see things in visuals. More of a creative thinker and is also great at expressing her thoughts through
words. My Father is an Actuary. He likes to see numbers, data, and facts so that he can make rational conclusions and for things to make sense to him.
To explain Netflix, I’ll mention that Netflix is a movie and television, a streaming-based platform that is currently operating in over 190 countries.
Netflix currently has three monthly subscription plans: $8.99, $13.99, and $17.99 (These are the current prices for the United States.)
Unlike some of Netflix’s competitors, it does not have a parent company and is its own entity. This can be both an advantage and disadvantage in some cases.
SALES. The total amount of money that is made from selling the product or service. COST OF SALES The total amount of money that is needed to make the products. EXPENSES The other money that is needed for operation. NET INCOME The total amount of money that is made after all costs and expenses. I published the visuals on Linkedin.
Neither of my parents work in finance or really work with financial statements or numbers in their jobs so I would have to explain the Profits and Losses of Coca Cola in understandable terms. I would run them through Coca Cola’s most recent Profit and Loss Statement and highlight their sales (revenue), cost of sales (cost of goods sold), and expenses for the last year. I would run them through some examples of different expenses that a company like Coca Cola would have and how they translate into the Profit and Loss statement. I would then explain the definition of Net Income and how we come to it from deducting the cost of sales (cost of goods sold) and expenses from the total sales (revenue) for that year.
To avoid the infection of the pandemic, I will take 2018’s annual financial statement into consideration. 3M competitors include Autoliv, Owens Corning, and Office Depot. The net income ratio attributed to 3M remains steadily in 2015-2018 at around 16%. Generally compare these four companies, the most competitive aspect of 3M is that its quality of the products is always considered the best among the others. I would persuade the others that the most sustainable value in a manufacturing company is the product. The essential publicity is the experiences with the product. The strength of 3M can be proved by the other company’s preformance in a dynamic change between every years. For example, Owens Corning Inc annual net income for 2019 was $0.405B, a 25.69% decline from 2018, whereas 3M annual net income for 2019 was $4.517B, a 15.55% decline from 2018. According to Comparably rating website, 3M’s product quality gains 4 in 5 point when Autoliv gains 3, Owens Corning gains 3.8, and Office Depot gets 3.3. This is a very impressive advantage in the competition.
Add to my points above:
Autoliv 2018 operating income 686 ÷ total revenue 8678 = 8%
2019 725 ÷ 8547 = 8.5%
2020 382 ÷ 7447 = 5%
Owens Corning 2018 807 ÷ 7057 = 11%
2019 755 ÷ 7160 = 10.5%
2020 -138 ÷7055 = -2%
2021 1427 ÷ 8498 = 16%
Office Depot 2018 239 ÷ 11015 = 2%
2019 191 ÷ 10647 = 2%
2020 264 ÷ 9710 = -3%
3M 2018 7207 ÷ 32765 = 22%
2019 6138÷ 32136= 19%
2020 7151÷ 32184 =22%
I am from team Loral, both of my parents are not familiar with numbers and bits of knowledge related to finance. So it is kind of unpractical to use graphs and charts. I will try to relate Loreal’s P&L to their lives. Although due to the Covid epidemic, The annual net income is several percentages lower than last year. For instance, professional, consumer, and Lureal Luxe all present a negative number. On the other side, we need to consider the ear of globalization. Under the health crisis, the market is highly influenced by government and consumers’ purchase behavior. Loreal still keeps its high market share. Therefore the negative number is temporary, Loreal is still on the way to leading the global makeup and skincare market.
Explaining the P&L of Coca Cola at a dinner:
Having most of my family work in finance, I feel the need to impress them and show my knowledge of P&L of a company while using the correct terms. I would start by arguing that the pandemic has largely affected all industries but especially the food & beverage sector because of the disruption in supply chains, at home consumption increase, while out of home consumption went down, resulting in suppliers to buy less products etc. I would then talk about the net operating revenues which saw an increase of 17% in 2021 compared to 2020, which almost hit their “normal” income prior covid in 2019. Meanwhile, their gross profit increased by 18% from 2020 to 2021, being higher than their profits in 2019. Having said the above, I would explain how Coca Cola is turning their losses into profits after the pandemic, while focusing on the price increase of their products, and their room for growth in the market. I would also mention the competitors such as Pepsi co, who are also undergoing the same price increase evaluation worldwide. Stating that Coca Cola has an innovative supply chain in place, having factories in almost all the countries they sell in, reduces their cost in the shipping sector. The year of 2022 looks like a brighter year for all the food & beverage sector while creating more room for growth.
L’Oreal P&L:
At a Thanksgiving dinner, I would explain L’Oreal’s P&L to finance and non-finance family members in the following way. Since L’Oreal is a massive conglomerate, it is easier to break it down by product category for simplicity’s sake. I would begin by explaining 3 main segments: sales, cost of sales, and expenses.
For example: L’Oreal sells $500,000 worth of hairspray (sales). That is 125,000 units at $4 a unit. It costs L’Oreal $.95 to manufacture each unit, along with a variety of other costs that goes into creating/distributing the units. (expenses and cost of sales). That means L’Oreal profits $3.05 on 125,000 units bringing net profit to $381,250 (opposed to $500,000 revenue).
As my family has a background in finance, I would explain the finances about L’Oreal using details and examples. L’Oreal’s P&L is split into the 3 main segments: sales, cost of sales, and expenses. in 2019, sales were equal to 29.87 billion euros, cost of sales 8.06 billion euros, and profit 21.80 billion euros. This shows that the company had a great year in 2019, as their profit was higher than the cost of sales and the company was able to benefit. As the peak of the pandemic has caused a slight decrease in profit, the company continues to keep its high market share by currently investing in new partnerships and projects to increase its profit.
As my family has a background in finance, I would explain the finances about L’Oreal using details and examples. L’Oreal’s P&L is split into the 3 main segments: sales, cost of sales, and expenses. in 2019, sales were equal to 29.87 billion euros, cost of sales 8.06 billion euros, and profit 21.80 billion euros. This shows that the company had a great year in 2019, as their profit was higher than the cost of sales and the company was able to benefit. As the peak of the pandemic has caused a slight decrease in profit, the company continues to keep its high market share by currently investing in new partnerships and projects to increase its profit.
My cousins who are in grade 10 and 12 are just studying the basics of finance and accounting in school. To give them a break from the boring studies and still make it a useful discussion for them, I would give them a choice to either take a spring vacation and go to Disneyland OR Universal studios. The rule would be that they get to pick only one and they would have to justify to me why they chose what they did. Both of them being Harry Potter fans immediately choose universal.
So to talk them out of it and since I am in team Disney, I would explain to them that the prices of a Disney ticket for 3 days is cheaper per day than a Universal ticket for one day and that Disney parks has many more options apart from just Disney land
To further discuss the topic with them I would ask them why they think the prices for Disney and Universal are so different, hopefully opening a conversation of Profit Loss, the different areas where Universal could be spending more money on licensing as compared to Disney. How much profit each company would make out of them buying a one day ticket or even a seasonal pass instead. Explain to them how companies need to pay tax, their employees, etc and how that would cut into their profit.
We would discuss:
cost of sales, operating cost and the net income Disney or universal would get from selling Park tickets
Since both my parents have working experience on finance, I would explain the P&L of Nike to them by dividing it into three segment: sales, cost of sales, and expenses. In 2021, Nike’s sales were 44493 million dollars, cost of sales were 24588 million dollars, and net income were 5727 million dollars. It shows that Nike has increased its revenue and profit after the pandemic and its profit was 12.9% of its sales, which means Nike had a great year in 2021 and continued to increased its profit. As Nike had a little decreased in profit during the pandemic, the company keeps its high market share right now and increased its profit.
Coming from a family that majority of family members working on finance related field, I would explain Disney’s P&L in a following way. Disney’s revenue growth rate is increasing year by year; it has a complete entertainment industry chain, including media networks, park vacations, film and television, consumption and interactive entertainment; and the income of these five major industries is almost all on the rise. The increase was mainly due to service costs, and the increase in operating expenses was also very small, or even slightly decreased. Disney has a high annual revenue. For example, in 2019, the annual revenue of Disneyland was 3.8 billion US dollars, RMB 245.5 billion; daily revenue was about 10.4 million US dollars. Amusement parks usually have a very long payback period. First, the initial investment is huge. Shanghai Disney invested 5.5 billion US dollars in the early stage, equivalent to 30 to 40 billion yuan. Disney’s profit has never been mainly based on tickets. Disney’s main profit point is in the second match. Generally, in the per capita consumption of Disneyland, tickets only account for about 30% – 40%, and the rest are second match. Tokyo Take Disney Sea as an example. Tickets are about RMB 400, but the per capita consumption is basically about RMB 800-1,000.
It’s another year around the table during Thanksgiving with great food and aesthetically pleasing decor. Everyone wants to take a picture so they whip out their new iPhones and iPads they got after its release in September.
We sit down for dinner with music playing from the Apple TV and everyone starts talking about how great the new camera on the iPhone is, how well their Apple Watch workouts are recorded on the Activity app, and what they think Apple is going to do next. My dad, however, makes the statement that changes the course of conversation: “Imagine how much of our money must be in Apple’s pockets!”
I would go on to take this opportunity to explain Apple’s P&L statement by clarifying that the amount of money Apple makes selling these products and services to us is NOT the same as their net income. Afterwards, I would get down to explain why that is.
Apple makes $365,817 (in millions) selling us products and services. Let’s make this 100%.
It costs Apple $212,981 to produce these products and services. That’s 58% of their sales.
Now, they have to market these products and services to us combined with research. This and more is all a part of expenses which is $58,672 or 16% of their sales.
After you subtract the 58% and 16% out from the 100%, we’re left with 26%.
This means out of Apple’s $365,817 in sales, their net income is only 26% of that or about $95,113.
At this point, everyone is shocked that even though Apple brings in a 26% profit from their sales, they still find a way to reel us in and want to continue to buy their products!
During a Thanksgiving chat with family and friends, I would explain that overall, P&L is a financial statements that showcases the profit and loss of the company. The P&L has 3 main segments: sales, cost of sales, and expenses. I would be covering the 2019 P&L of L’oreal.
The net sales, also known as the total revenue is 29,873.6 million euros. The the cost of good sold which is also cost of sales, is 8,064.7 million euros.
At at last is the expenses total which is 16,234 million euros. The difference is Net Income of 5 547.5 millions euros. To calculate the percentages of sales ratio, you divide each segment with the net income total. sales is 54%, cost of sales is 26%, and expenses is 18%. This would be a simple way to calculate a P&L.
I would explain profit as the money you make after taking account of all the properties that make up the development, distribution and selling of a product or service. Let’s use Ulta as an example. Ulta sells beauty products but also provides services in its stores. This means they are a product and service based company. When looking into P&L, there are three components to find the profit & loss margin on a financial statement, which comprise of sales, the total amount of money made from selling their products and services, the cost of sales, which includes all of the added costs in selling the product (cost of selling and distributing the products and services) and expenses , which are all of the expenses and operating costs that contribute to producing the products and services. I would go through the ratios on the income statement, indication how sales compile 100% of the total, and the difference between sales and cost of sales and expenses is net Income, which is the profit made off of the product or service after all costs are accounted for. I would then use Ulta’s income statement from the latest annual report to divide up the ratios and visualize the % of sales its made or lost from the year prior.
The only person in my family who has experience in business or finance is my grandmother. I would explain to her that Disney’s P&L from 2018-2020 was increasing rapidly, until understandably going into net loss for 2020. From 2017-2018 the net sales growth is 8%, then from 2018-2019 the net sales growth is 17%, finally leading to a negative net sales growth of -6% from 2019-2020. Disney was rapidly expanding and increasing its their amount of expenses, particularly for products sold, jumping from 55% in 2018 to 60% in 2019. While Disney continued its increase in product cost, the administrative expenses jumped dramatically from 24% in 2019, to 37% in 2020. A significant part of this is the significantly higher restructuring cost for 2020.
In my family my mother has finance experience so I would like to explain L’Oreal’s profit and loss to her. The total revenue of L’Oreal is $29873.6. The cost of sales is $8064.7. The Net income is $3750. In 2019, there is an increase on total revenue. And a slight increase on cost of sales. As a result the net profit is decrease slightly. The company is still earning benefits, but the performance in 2019 is not better than 2018.
Pfizer Income Statement:
This is how I would explain Pfizer’s income statement to my family at Thanksgiving dinner. As both my parents are professional accountants, they can quickly understand the income statement. So I’ll try to show my family members Pfizer’s 2021 income statement. Then I’m going to divide it into sales, cost of sales and expenses.
Specifically, Pfizer accounted for 100% of 2021 sales of $81,288. Meanwhile, the cost of sales was $30,821, accounting for 38% of sales, and related expenses were $28,488, accounting for 35%. Net income was $21,979, representing 27% of sales.
As a result, Pfizer is very profitable. In addition to production costs, Pfizer spends a considerable amount of money on research and development expenses. These proportions reflect the nature of the pharmaceutical industry and pharmaceutical companies.
When my family meets, the general topic of conversation is Finance. My Mom says that the simplest way to explain a P&L is “income less expenses which shows whether a profit or loss has been made; or breakeven”. Now, let’s try explaining this in simpler terms to my 9-year-old brother at Thanksgiving dinner as he is always fascinated by new things.
The Profit and Loss Statement (P&L) includes 3 main sections: sales, cost of sales, and expenses. In Pfizer’s case, this would include the money they make in all 3 operating segments of Biopharma (e.g., vaccines, hospitals, internal medicine, etc), Pfizer CentreOne (e.g., manufacturing and formulations), and Consumer Healthcare (e.g., over-the-counter and prescription medication). Sales is nothing but the money earned from selling goods and services. The cost of sales is the money used to produce these goods and services. Expenses would include any other operating expenses for production.
Take the Pfizer and BioNTech Comirnaty vaccine, as an example. If the vaccine is sold at $20 per vaccine (sales) and it costs $2 to manufacture one vaccine (cost of sales) and operating costs (expenses) are $2 per vaccine, the net income is $20-$2-$2 = $16. Now, Pfizer shares these profits at a 50-50 split with BioNTech for this vaccine. Hence the net income/profit for Pfizer alone per dose of the Covid-19 vaccine is $8. Costs can be fixed (e.g., cost of rent for land) or variable (e.g., salaries of employees) which is also factored into a P&L when calculating net income.
We calculate ratios as 100% of the net sales for both Pfizer and BioNTech combined as it is uncertain how costs are split between both companies despite profits being split in a 50-50 ratio. Hence, the cost of sales as percentage of net sales is 10%. Expenses as a percentage of net sales is another 10%. Hence, net income/profit is 80% of net sales. However, considering the fact that profits are split in a 50-50 ratio, it is to be noted that this 80% is split between Pfizer and BioNTech.
Since this is per one dose of vaccine and hence marginal, total revenue for Pfizer would roughly be the company’s revenue/sales per vaccine multiplied by the number of units sold and total net income would be calculated accordingly. For perspective, if Pfizer sells 100,000 units at $20 each with net income at $8, total Pfizer’s net income/profit is 50% of ($16*100,000) which is $800,000.
Now imagine this happens not just with vaccines but also with other segments within the company. All this is added to the Profit and Loss Statement. My brother was intrigued, to say the least.
Neither of my parents have a professional financial background, so I will introduce my family to Apple’s 2021 profits in the simplest way possible. Total sales are very objective, the cost of sales is 58% of total sales, expenses account for 16%, net income 26%. This means that the production cost of Apple from raw materials to finished products is 58% of the total sales, while marketing, administrative, operating and other miscellaneous expenses account for 16%. Apple can make as much as 26% of its net profit in the process. As a tech giant, the profit of Apple is really high!
Neither of my parents work in finance industry, so I would have to explain the Profits and Losses of Apple in understandable terms.
Firstly, I will explain P&L is a financial statements that showcases the profit and loss of the company, basically covering three main segments: sales, cost of sales, and expenses. Then I will use detailed data to explain more clearly. Specifically, Coca-Cola 2021 sales is $38,726, increased by 17.25% compared to 2020. Meanwhile, the cost of sales was $15,508, accounting for 40% of sales, and related expenses were $13,554, accounting for 35%. Net income was $9771, representing 25% of sales.We can draw Coca-Cola is a very profitable company although suffer from the pandemic in 2020 and recover quickly in 2021.
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My parents own a textile company, and some of my family members works in financial companies, thus I think it will be easier to explain the Profits and Losses of Nike to them in our Thanksgiving Dinner. I will basically segment the P&L form into three parts: Sales, Cost of Sales, and Expenses, and I will firstly show them the equation that Net Income(%)= Sales- Cost of Sales- Expenses, then several specific data from Nike will be introduced to them as detailed explaination.
For Nike, I will introduce to my family that Nike’s Sales was $44538 in 2021, and increased by 19.08% compared to 2020. It’s Cost of Sales was $24576 in 2021, which was accounting for 55.18% of the total Sales, and increased by 16.13% from 2020. For the expenses, Nike’s expenses was $14325, which took up for 32.16% of Sales, and increased by 4.55% from 2020. In 2021 Nike’s Net Income was $5727, which was accounting for 12.66% of the total Sales. Thus, for Nike, their Net Income(12.66%)= Sales(100%)- Cost of Sales(55.18%)- Expenses(32.16%), and Nike could generate 12.66% of its total Sales for its net income in their operation. Therefore, as a global soprts retailer giant, Nike could be really profitable globally.
For Disney, the main offline theme park competitorsare Universal Studios and six flags. In 2021,Disney’s cost of sales reached $4,300millions Disney revenue for the quarter ending June 30, 2022 was $21.504B, a 26.33% increase year-over-year. Disney’s main competitor in the
online business is netflex. Disney’s online business accounts for a lot of its total, with Disney plus increasing its profit by 85% in 2021 compared with 2020.
Although my parents do not work in the field of finance, they are always interested in investing in stocks. Therefore, they have a basic understanding of financial knowledge. But they may not know much about a company like Disney, which is listed in the United States. I’ll give them a brief overview of Disney’s business and how it’s been doing in recent years. It’s not intuitive to tell them specific numbers like income, so I’ll tell them in terms of growth rates. At the same time, it will be easier for them to understand how Disney operates when compared with competing companies. Disney has been more resilient to the coronavirus than its rivals.
My father knows a lot about finance, so I’m not the least bit worried that he won’t be able to understand a company’s p&l. But my mother is not very interested in numbers, so if I were in a situation like this, I would try to keep the numbers to a minimum so that my mother could better understand what I was trying to say, or at least not bore her.
The company I would like to talk about is Estee Lauder because it would be more interesting to my mother. Estee Lauder’s revenue for January-June 2022 was 17,737 million, and if we classify revenue as 100%, Estee Lauder only takes up 24.3%, or 4,310 million, in spending on raw materials for its products, which is the cost of sales. But Estee Lauder’s net income is only 2,412 million or 13.6%. This is because Estee Lauder spends very much on non-raw materials, which called expenses, such as marketing expenses, which account for 57.9%, or 10270 million. This shows that Estee Lauder’s main cost is not in raw materials.
For Disney, the main offline theme park competitorsare Universal Studios and six flags. In 2021,Disney’s cost of sales reached $4,300millions Disney revenue for the quarter ending June 30, 2022 was $21.504B, a 26.33% increase year-over-year. Disney’s main competitor in the
online business is netflex. Disney’s online business accounts for a lot of its total, with Disney plus increasing its profit by 85% in 2021 compared with 2020.
Compare to our major competitors, McDonald’s has higher revenue and net income. (McDonald’s net income is 32.5%, Burger King is 21.8%, Wendy’s is 10.6%) Digital sales are doing great in 2021, 25% of sales in our top 6 markets came from digital channels, we should maintain our strength in the digital market. and we could try to do more special menu in USA, since in other country special menu works really well.
I’m from L’Oreal team. Both my parents and I did not learn about finance in a professional way before. As for me, my major is journalism during my undergraduate school. And I did not learn much about numbers even those graphs and charts. But with what I learned from this course, I think P&L can help the company leaders know the business much more clearly. I found that L’Oreal has made a large amount of profit in 2021 than 2020 because of the pandemic. I think learning about P&L really helped me a lot for understanding the balance sheet.
My parents owned their own business that sold gasoline. But their educational background is very low. So for them, commercial things are very familiar, but every economic term needs to be explained in the most everyday language.
For example, I am very interested in Disney. Then the Profit & Loss statement can be explained in this way.
Sales is like income. Tickets, hotels, and product sales, all the money the Disney companies make. Cost of sales and expenses is the money Disney spends. Things like salaries for employees, money to maintain the facility and build the facility. Simply put, one is the money you get and the other is the money you spend. And if we get more money than we spend, it means we have a profit, we are profitable.
My parents’ jobs are tied to business, so I can explain and talk to them about P&L in professional terms.
First of all, the company I chose is Apple, as we all know, Apple is a famous company that produces cell phones and other electronic products, and the cell phones my parents use are also produced by Apple, so it’s more convenient for me to introduce and explain to my parents, first of all, I will introduce to my parents what is P&L, P&L is a way to calculate the company’s profit and loss over a period of time, that is to say, P&L can calculate the profit of the company and the loss of the company. In other words, P&L can calculate the company’s economic situation for a period of time, and the full name of P&L is Profit loss.
I explained to my parents about Apple’s finances for the last two years and explained to them how to calculate and see the company’s financial income through the formula:
Sales-Cost-Expenses=Net Income
https://www.wsj.com/market-data/quotes/AAPL/financials/annual/income-statement
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LVMH’s annual report includes the percentage of annual growth of revenue. The revenue growth is shown in reported growth and organic growth. Organic growth almost always seems to look better in numbers than reported growth. Why are reported growth and organic growth different and what is causing this difference?
If I were to explain LVMH’s P&L to my family, I would first explain what brands are operated under the conglomerate. LVMH’s business is divided into 5 sectors: wines & spirits, fashion & leather goods, perfumes & cosmetics, watches & jewelry, and selective retailing. LVMH’s income statement is a collective report of all business sectors. A P&L is a profit & loss statement, usually seen as the income statement of a company. The company’s profit is calculated by deducting expenses from total revenue. This is different than the balance sheet because a balance sheet adds up the company’s asset. If we want to learn about the profit and loss of LVMH from last year, we should be looking at the income statement.
The income statement calculates net profit by subtracting expenses from total revenue, including COGS, marketing and selling expenses, administrative expenses, operating expenses, income taxes, and etc. Looking at the income statement, LVMH spent more on marketing & selling than on cost of goods sold, which means that they have invested a lot in marketing and that marketing is crucial for the luxury industry.
In the given scenario, I will be will be speaking about the company I chose and their competitors in an informal chat with Family members during Thanksgiving.
“Hey everyone, while we’re talking about tech and cars, have you guys heard about Tesla? It’s really fascinating how they’re shaking up the car industry! They’re like the rock stars of electric vehicles. Unlike traditional companies, Tesla relies heavily on data and software to improve their cars, which means they don’t need as much expensive hardware.
Now, BYD and Li Auto are also in the game, especially in China, where they’re selling tons of electric vehicles. BYD is focusing on a wide range of options, from buses to cars, while Li Auto is really pushing its extended-range electric vehicles. They’re catching up, but Tesla’s got this cool combination of brand loyalty, a massive Supercharger network, and cutting-edge technology that keeps them ahead.”And since they’re developing full self-driving, maybe in the future, Mom won’t need to worry about parallel parking anymore! My uncle works at Goldman Sachs, so he might appreciate this—Tesla’s business model lets them scale up efficiently, which is why they’ve been able to report profits even as they invest heavily in new tech and factories.”
I would start by talking about the newest innovations meta is coming with like the Metaverse , they are also creating highly advanced algorithms that can predict consumer behavior to the highest degree . But these innovations are coming at a cost . the research and development cost of Meta has doubled in 2023 as compared to 2020 and im sure that the 2024 numbers will be even higher . They need their ventures to be a success as they are sinking a lot of extra money on these mega projects. As of 2023 Meta’s revenue numbers have shown a sales growth of 58% as compared to 2020.Showing that Meta is successfully appealing to new users and clients.The Net income has also increased significantly by 31% as compared to 2020 , the profitability has been impacted a lot by the rising Research and development costs of the company. i would also add that as expected the costs as a percentage of the revenue or sales have increased over the years as expected . In 2020 cost of sales being 11.4% and it being 19% approximately in 2023.