The effect of a Profit and Loss Statement on a Company’s Financial Situation

Businessman Eitan Eldar states: a Profit and Loss Statement is a financial statement detailing the financial expenditures of the company or organization for a specified period of time, usually a quarter or a year. This statement shows the company’s financial data, including the income from goods’ sales, services or any other source of income, as well as detailing the total of the various expenses and costs derived from the operations in a company. In general, the data indicates whether the reported period yielded net profit or loss, and to what extent.

Statements have a significant impact on the financial aspect of the company, particularly with regard to investments and external investors.

Evaluating the company’s state utilizing profit and loss statements

According to Eitan Eldar, examining income statements is one of the most effective ways to measure the position and strength of a company, by considering the present-day and past situation, and comparing it to other competitors. A comparison with other companies is performed via percentages, in order to make a comparison between various sized companies, and the comparison to the company’s past statements indicates whether there is a trend of growth and improvement or the opposite.

The Impact of a statement on the financial situation of a company

Data and conclusions of profit and loss in a statement with regard to all its various components, such as operating profit and gross profit, have a direct influence on the decision of whether to invest in the securities of the company or not, according to Eitan Eldar. Moreover, the economic value of a company is heavily influenced by these statements, if the company wishes to find investors or sell the business.

On the other hand, the company’s creditors, such as banks, suppliers and buyers of bonds have an interest in the income statements, indicating the company’s ability to repay its debts, and whether it is advisable to continue to provide it with credit and on what manner. Moreover, an income and loss statement examined by a professional can raise the financial position of a company.