What is PNL? The importance of PNL in business

PNL is not only an important tool for businesses to evaluate financial performance, but also the basis for making accurate strategic and investment decisions. So what is PNL? In this article, let's explore with 1C Vietnam the concept of PNL and why every business needs a PNL report to ensure success and sustainable development.

1. What is PNL?

PNL, short for "Profit and Loss Statement" or also known as profit and loss statement, is an essential financial report in a business. This report provides an overview of the profit and loss situation over a specific period of time, helping businesses evaluate the difference between revenue and expenses.

The formula for calculating PNL is simple as follows:

PNL = Total revenue – Total costs (including taxes)

In there:

• Negative PNL: When the report shows a negative number, it means that the business is operating at a loss.
• Positive PNL: When the figure is positive, the business is making a profit from its operations.

2. What role does PNL play in business operations?

PNL plays an extremely important role in business activities, affecting not only businesses but also investors:

• For investors: PNL provides insight into the performance of a business. This report helps investors assess the profitability and performance of an organization to make smart investment decisions.
• For businesses: PNL is an important tool to monitor performance. If PNL is negative, businesses need to review their business strategy to improve the situation. Conversely, if PNL is positive, businesses can maintain and optimize performance to attract investment.

In addition to showing profit and loss, PNL also helps businesses allocate resources and budgets more effectively. This report provides information on trends in revenue, expenses, net income and total profit, which is the basis for making strategic decisions.

3. PNL characteristics in investment activities

In investment activities, PNL has the following 3 typical characteristics:

• PNL is a type of report that provides details about a business's net profit, which includes revenue and expenses.
• PNL shows the management ability of the business, influencing the decision to boost revenue or cut costs.
• PNL shows trends in revenue, cash flow, expenses, income, and overall profitability, demonstrating an organization's resource allocation and budgeting strategy.

Through assessments from PNL, investors can make more accurate investment decisions. At the same time, PNL is also the basis for business administrators to come up with effective new business strategies.

4. What are the basic components of PNL?

After understanding what PNL is, it can be seen that in general, a complete PNL report will include the following main components:

• Revenue: Total amount of money received from business operations over a period of time.
• Gross profit: The difference between revenue and cost of goods sold.
• Operating Expenses: Total costs of maintaining a business.
• Profit before tax: The difference between gross profit and operating expenses.
• Net profit: The difference between profit before tax and corporate income tax.

5. Some factors related to PNL

In addition to the basic components, PNL also includes other factors such as income taxes, interest expense and earnings per share:

• Income Tax: An expense calculated before net profit is calculated.
• Interest Expense: The amount of interest paid on loans.
• Income: Money generated from bank deposits or interest sources.
• EPS (Earnings Per Share): Shows the amount of money shareholders receive per share, calculated by dividing net income by the number of shares.

6. Summary of effective PNL reporting methods

To effectively prepare PNL reports, businesses can apply two popular methods: the minimalist method and the detailed method. Below is a detailed implementation for each method:

6.1. Minimal PNL Activity Report Creation Method

This method is suitable for small businesses or organizations with simple operations. The reporting process using the minimalist method usually includes the following steps:

• Gather data: The first step is to gather all of your business's financial information for a specific period of time, such as monthly or quarterly. The data should include revenue and any expenses related to the business's operations.
• Compile the data: Once you have collected the data, the next step is to organize it into a spreadsheet or accounting software. This process involves grouping revenue and expenses into appropriate categories.
• Calculating Net Profit: To determine net profit, one needs to subtract total expenses from total revenue. Net profit reflects the actual amount of money a business earns after all expenses have been deducted.
• Check and Correct Errors: Finally, review your PNL report to ensure the accuracy of the information. If any errors are found, edit or adjust the data to ensure the report is completely accurate.

6.2. Method of creating detailed PNL activity report

This method is often used in larger companies with more complex financial structures. Detailed PNL requires multiple steps and uses sub-reports to analyze financial performance in depth. Here is the basic process for performing a detailed PNL report:

• Identify cost categories: The first step is to identify the business's major cost categories, such as salaries, rent, purchasing costs, and advertising.
• Collect detailed data: Next, you need to collect detailed information about the income and expenses in each category. This often requires a complex accounting system to track each transaction.
• Create sub-reports: Accountants should create sub-reports to track financial performance by specific area, such as sales reports, payroll expense reports by department, or any report that fits the structure of the business.
• Consolidate data: Then, all the data from the sub-reports need to be consolidated into the main PNL report. This helps to get an overview of the financial performance of the business.
• Analysis and evaluation: Finally, perform PNL report analysis to evaluate financial performance and thereby make strategic decisions for the business.

7. Frequently asked questions about PNL reporting

Although many accountants understand what PNL is and know the implementation methods, the implementation process still encounters many difficulties. Below are frequently asked questions and answers related to preparing PNL reports:

7.1 How to distinguish between PNL and balance sheet?

The balance sheet and the PNL statement are two important financial statements, but they have the following fundamental differences:

7.2 Is PNL reporting mandatory?

PNL reporting is a mandatory requirement for all businesses, organizations and individuals. Preparing PNL reports not only ensures compliance with the law but also provides a clear view of business performance. This helps businesses make accurate decisions, optimize financial resources and promote sustainable development.

7.3 Is the PNL report an income statement?

The profit and loss statement (PNL) is also sometimes referred to as the income statement. However, the income statement is usually only applicable under the accounting and tax regulations of some countries, while the PNL statement is widely used globally.

7.4 Who is responsible for PNL reporting?

Typically, PNL reports are prepared by a company's accounting or finance department. Accountants collect and process information related to revenue, expenses, interest, taxes, and other expenditures to determine profit or loss.

For business individuals, PNL reports can be prepared by themselves or by an outside accountant. However, in many cases, PNL reports are prepared by professional accountants to ensure the accuracy and completeness of the information.

8. Prepare detailed business performance reports with 1C:ERP solution

1C Vietnam offers a comprehensive approach to detailed business performance reporting, helping businesses track and analyze financial performance easily and accurately thanks to the 1C:ERP solution.

With the support of technology and advanced financial management solutions such as 1C:ERP, the preparation and analysis of PNL reports become more accurate and easier, bringing sustainable value to the business. Investing in PNL reports is not only an investment in effective financial management but also an important step towards long-term success and development.

Below are the advantages that make 1C:ERP the top choice when it comes to solutions to support detailed business performance reporting:

• Expense Management: The system enables businesses to monitor and control costs effectively by using advanced methods to classify costs into three main groups: product costs, financial results costs and capital asset costs.
• Cost Calculation: One of the outstanding features of 1C:ERP is to identify and analyze important expenses. The system allows businesses to collect detailed information about costs from business activities, thereby calculating and allocating costs accurately.
• Determining financial results: The process of determining financial performance includes calculating results for each specific business area as well as summarizing the financial results of the entire enterprise. The system supports recording other income and expenses, helping administrators have a clear view of financial performance during the reporting period.

Hopefully, through the above article, your business will have a better understanding of what PNL is and have a deeper insight into revenue, costs and profits in business. In particular, with modern support solutions such as 1C:ERP, preparing business performance reports becomes simpler and more accurate than ever, allowing businesses to make accurate strategic decisions based on in-depth and reliable analysis. Please contact 1C Vietnam immediately for more advice on the product.