How do I correctly interpret the results of my income statement?
August 30, 2022 | 40,00 EUR | answered by Adele Halbscheffel
Dear Tax Advisor,
My name is Katja Schillinger and I am the owner of a small business in the field of event planning. Over the past few years, I have regularly prepared my profit and loss statement to gain an overview of the financial situation of my company. However, I find it difficult to interpret the results correctly and draw the necessary conclusions for my business.
In the current profit and loss statement, I see that the revenue has increased compared to the previous year, but the costs have also significantly risen. As a result, the pre-tax profit is lower than expected. I am concerned that I may have made wrong decisions and that my company could be heading into a financially difficult situation.
My question to you as an expert in profit and loss statements is: How can I interpret the results of my profit and loss statement correctly in order to better understand the financial situation of my company and take the right measures to improve the results? Are there specific metrics or analyses that can help me identify the causes for the development of my company and react accordingly?
I would be very grateful if you could provide me with your expertise and help me interpret the results of my profit and loss statement correctly and take the right steps for the future of my company.
Thank you in advance for your help.
Best regards,
Katja Schillinger
Dear Mrs. Schillinger,
Thank you for your inquiry regarding the interpretation of your profit and loss statement. It is important to understand the financial situation of your company correctly in order to make the right decisions for the future. In your case, it is positive to see that the revenue has increased, but the increased costs should also be analyzed carefully to better understand the pre-tax result.
To interpret the results of your profit and loss statement correctly, I recommend using various metrics and analyses. An important metric is the profit margin, which indicates the relationship between the profit and revenue of your company. By looking at this metric, you can determine how efficiently your company is operating and whether the increased costs are appropriate.
Furthermore, I recommend conducting a cost structure analysis to identify the causes of the cost increase. You can break down and analyze the individual cost types to determine which costs have increased in which areas. You may be able to identify potential cost savings or find alternative procurement methods to optimize costs.
Another important analysis is the break-even analysis, which shows you at what revenue point your company starts making a profit. By looking at this point, you can estimate how your cost development affects profits and what revenue increase is necessary to operate profitably.
Additionally, you can also conduct a liquidity analysis to ensure that your company has sufficient liquid assets to meet its obligations in a timely manner. A thorough analysis of your financial situation allows you to take timely action to avoid financial constraints.
Finally, I recommend regularly reviewing and analyzing your profit and loss statement to continuously track the development of your company. If you have any uncertainties or questions, I am available to assist you in interpreting your results and helping you plan your next steps.
I hope this information helps you and I am here to answer any further questions you may have.
Best regards,
Adele Halbscheffel
