What Is a Profit & Loss Statement (P&L)? How It's Used to Value a Business

Also called an income statement. Covers a span of time — month, quarter, year, or rolling 12 months — and shows revenue, expenses, and resulting profit or loss over that period.

Why it matters: The P&L is usually the first document a buyer asks for, and for good reason — it's the fastest way to see whether a business is actually making money and how. For a seller, that means the P&L needs to be clean, explainable, and ideally supported by tax returns that tell a consistent story; a P&L that looks great but doesn't reconcile to the tax return is one of the fastest ways to lose buyer trust in early diligence. For a buyer, multiple years of P&Ls (typically three) show trend, not just a snapshot — a business trending up tells a very different story than one that happened to have one strong year before listing.

Example: A seller shows a P&L with $500,000 in revenue and $120,000 in net profit for the most recent year. A buyer who requests the prior two years discovers profit was $60,000 and $40,000 respectively — a business on a genuine upswing, not a steady performer, which changes how a buyer thinks about sustainability of that most recent number.

The P&L, tax returns, and balance sheet are the three documents most commonly used to value a business. It's one of the three primary financial statements, alongside the cash flow statement and balance sheet.

Related terms: Balance Sheet, Financial Statements, Add Backs, Seller's Discretionary Earnings (SDE)