Income statement (P&L)

Definition

What a business earned and spent over a period, ending in profit.

Why It Matters

It is where the asking price comes from, because the multiple is applied to earnings this statement reports, so every line a seller has understated or left out moves the price. Do not read it on its own. The version prepared for a sale and the version filed with the IRS are both true statements about the same year, and where they disagree is the most useful question a buyer can ask.

In numbers: Revenue of $2M less $1.2M of cost of sales and $600,000 of operating expenses leaves $200,000 of pre-tax profit, which is the line every add-back argument starts from.