3 Phrases You Should Know From the P&L
To support JMP on our journey of separating from SAS, the Finance team has grown quickly over the past year. As an organization, we strive to share the “Why?” even if it sounds like complex Finance lingo.
In this new series "Financial Literacy 101", we aim to explain basic financial topics in a way that is beneficial to all.
P&L stands for Profit and Loss, also known as the Income Statement, which is a summary of a company’s revenue and expense for a period of time. “Profit and Loss” refers to whether the income statement reflects more revenue than expenses (Net Profit) or more expenses than revenue (Net Loss). The statement shows a summary of operations across the entire company, including all locations and cost centers. Below is a visual example of a P&L.
This is an example and does not reflect JMP’s actual financial information.This is an example and does not reflect JMP’s actual financial information.This is an example and does not reflect JMP’s actual financial information.
What is included in the P&L?
The income statement has a few components. The first component is revenue, which represents what JMP has earned by selling software and providing technical support. The next component is COGS (Cost of Goods Sold), which is an expense that represents the direct cost of delivering a product or service to a customer. For JMP, Technical Support is an example of COGS because it is the direct cost of providing support to our customers. The total revenue minus COGS is Gross Profit, indicating the efficiency with which JMP uses direct costs to deliver value to customers before paying for other operating costs.
Expenses are the final component of the Income Statement, reflecting the cost of doing business and most often resulting in paying cash to vendors or employees. Expenses can also include non-cash items such as Depreciation and Amortization which were explained in the EBITDA blog last month. In lieu of showing every account on the income statement, there are common expense categories shown such as Salaries, Marketing, Travel, etc. This summarized presentation allows for easier internal review and comparability across companies.
All expense transactions are tracked by cost centers, a department to which costs can be allocated. This enables JMP to analyze the expenses more closely and better manage the budget. As an example, beginning in 2023, department heads will receive a monthly report of their department’s budgeted versus actual travel expenses.
Why does this matter for JMP?
As Jon Weisz mentioned during the JMP Reunion, we need to have money before we can spend it so there are limits to how much we can spend. As a company, we must be intentional about setting our revenue and expense budgets and that begins with understanding the P&L. The income statement is closely scrutinized by auditors, which means we need to have clearly defined processes in place. A process is only useful if it is followed, which means we need company-wide support to ensure we are above reproach when it comes to the time for an audit.
Why should this matter to JMP staff?
As we transition into a standalone company, there are limitless possibilities for new and exciting opportunities. At one time or another, every employee may have a need to purchase something. It is important that we are all informed and understand the need to work across departments for the continued success of each individual and JMP.
Learn more about this topic using the following video as a useful resource:
The INCOME STATEMENT for BEGINNERS (YouTube)
00:00 - Intro
00:08 - Financial Statement Definition
00:41 - What is a Basic Income Statement?
00:55 - What is a Detailed Income Statement?
01:52 - How to Make a Basic Income Statement
03:19 - How to Make a Detailed Income Statement
Related articles:
EBITDA.
JMP Revenue Today.
I always knew that JMP Technical Support were important COGs in the wheel when making JMP roll so smoothly and now I know why.
