A rather crucial fiscal document we would assess to thoroughly define the best Strategy forward (Phase 1) for our clients is the ‘P&L statement’.
A P&L is a financial document that summarizes revenues, costs and expenses incurred during a specific period of time–usually a fiscal quarter or year. As this income statement is prepared based on accounting principles that include revenue recognition, matching and accruals, the records normally provide information that shows the ability of a company to generate a profit by increasing revenue(s) and reducing costs. The bottom line (literally and figuratively) is net income, aka profit.
The profit and loss statement is one of the 3 financial statements a public company is bound to issue quarterly and/or annually. The other 2 are (1) the balance sheet and (2) the statement of cash flow/s.
THE 3 KEY FINANCIAL STATEMENTS FOR PUBLIC COMPANIES
- P&L STATEMENT: A profit and loss statement aggregates the revenues, expenses, profits/losses of a business.
- BALANCE SHEET: A balance sheet captures company’s assets, liabilities and shareholders’ equity at a specific point in time, allowing to evaluate capital structure and to compute rates of return.
- STATEMENT OF CASH FLOWS: A statement of cash flows describes the cash movements into and out of an organization/company, specifically those linked to operations, investments, and financing types of activities.
The profit and loss statement is considered by many as the most crucial among these 3 financial statements, for it reveals the ability of the reporting business to generate a profit. The statement is particularly useful when viewed on a trend line, to see how an organization is faring over time, which results it is driving and how well it is performing–in terms of CAGR and ROI, as well as based on an ad-to-sales ratio analysis.
THE TOP 7 MAIN CATEGORIES WITHIN A P&L [NETA] WOULD ADVOCATE FOR A DIGITAL CHANNEL:
- Revenue (or sales)
- Cost of goods sold (or cost of sales)
- Other cost of sales (shipping, returns, promotions)
- Human resources (full-time employees, contractors, interns, payroll expense)
- Platform expenses (technology, credit card payments)
- Production cost on media (photography, video)
- Marketing & advertising (paid media, marketing services)
At netamorphosis, a P&L statement is the fundamental financial planning tool we would use to map and understand current indicators of performance management as well as to project the future operational development resulting from one of our growth strategies–which in our experience is actually to be achieved only through continuous P&L analysis and assessment.
For existing business(es), we would work with an existing P&L framework of a company, and if a digital channel or eCommerce channel P&L has not been created, it is neta’s objective in our initial Strategy phase together, to construct this P&L framework within the holistic organizational P&L.
For earlier stage, less mature companies (what we’ve termed ‘0 – 2 year-olds’) where formal financials may not yet be ‘up to snuff’, or there may not be a resource allocated to financial diligence, neta will serve as a guide to vet assumptions and ensure that client operations are well-equipped to deal with the realities of entering and competing within the current digital and omnichannel marketplace and/or sector.
In the event that we recommend greater capital or CapEx, neta evolves our P&L into a comprehensive investor financial model from which we’ve had a 100% success rate in closing capital in our Capital Raising service (raise amount to date = $70M).