The Profit & Loss Statement
Revenue, cost of goods sold, gross margin, operating expenses, and net income — and what each tells an investor.
Structure
Revenue minus COGS equals Gross Profit. Gross Profit minus Operating Expenses equals Operating Income. Operating Income minus interest and taxes equals Net Income. Investors read top to bottom.
Gross margin is everything
For software, healthy gross margin is 70%+. For services, 40-60%. For physical products, varies widely. Gross margin tells investors whether your business model works before you spend on growth.
Above and below the line
Operating expenses (above the operating-income line) are recurring. One-time items belong below. Mixing them makes your P&L unreadable and hides trends.
Key takeaways
- P&L reads top-down: Revenue → Gross → Operating → Net.
- Gross margin reveals whether the model works.
- Keep one-time items below the operating line.