5 Profit and Loss Terms All Retail RDs Should Know
By RDBA Executive Director Annette Maggi, MS, RDN, LD, FAND
As you learn more about the workings of the retail industry, understanding financial statements will help you more effectively understand what drives company goals and how you can contribute to the company’s bottom line. Today, we feature five terms you need to understand about the profit and loss statement, one of three corporate financial statements (also balance sheet and cash flow) retail leaders use to evaluate their business.
Five P&L Terms:
- Profit and Loss Statement. Also called the income statement, this report summaries revenues, costs, and expenses during a specified period of time, such as a quarter or fiscal year. The report allows companies to evaluate their ability to increase profit by lowering costs, increasing revenues or both.
- Revenue. Simply put, this is all the income the company has generated, and is a value company’s often report publicly. While revenue may be increasing, this number alone does not provide enough information as costs may be growing faster than revenues.
- Gross Profit Revenue. This is revenues minus the cost of goods sold, and shows the gross profit made on these items. From produce to center store, the retailer is paying a price to the vendor for these goods, but most often charges a higher price on the retail shelf. The exceptions are loss leaders, which are intentionally priced low to bring shoppers into the store, or items on clearance or markdown.
- Operating Profit or EBIT. There are a variety of operating expenses that a retail grocer has including salaries, rent, and utilities. The Operating profit reflects the gross profit revenue minus these operating expenses.
- Net Income. This is the bottom line on the P&L, and can also be called profit or earnings. This number is the operating profit minus interest paid on debt and taxes paid. Theoretically, net income is available to shareholders (in publicly traded companies), but instead of paying out a dividend companies often reinvest the profit in the company.
To learn more about P&L statements and other financial reports your company uses, partner with someone in your finance or buying departments. They’ll appreciate that you are seeking to learn more about their role and function within your retail company.