Profit & Loss Calculator

A Profit and Loss statement, also called an income statement, sets revenue against expenses over a chosen period, whether a month, a quarter or a year, and shows whether the business made money. It works as a cascade. Revenue, or turnover, less the Cost of Goods Sold gives Gross Profit, where COGS means the direct costs of delivering the product or service, meaning materials, direct labour, manufacturing overheads and freight-in. Gross margin at that point is what tells you about pricing power and the economics of the thing you sell.

Take operating expenses off the gross profit and you reach Operating Profit, sometimes called EBIT. Overheads at this level cover rent, utilities, salaries of non-production staff, marketing, insurance, depreciation, professional fees and administration. Interest and tax then come off to leave Net Profit, the bottom line and the measure of what shareholders actually earn. EBITDA, meaning earnings before interest, tax, depreciation and amortisation, is the variant used for valuation because it strips out the non-cash items.

Three ratios do most of the diagnostic work. Gross margin is gross profit divided by revenue and multiplied by 100, net margin is net profit over revenue on the same basis, and the overheads ratio measures total overheads against revenue. Watching them month on month says far more than any single period. A falling gross margin points to a pricing problem or rising supplier costs. A falling operating margin while gross holds up means overheads are bloating. A net margin dropping while the other two stay steady is unusual and normally comes back to interest or tax. Rising gross margin alongside a falling net margin is the classic scaling problem, with overheads growing faster than sales.

Numbers make the cascade concrete. On £200k of revenue with £80k of COGS, gross profit is £120k, a 60% gross margin. Take £80k of overheads and operating profit is £40k, a 20% margin. After £8k of tax, net profit is £32k, or 16% of revenue. Every UK limited company files accounts including a profit and loss with Companies House each year, so this structure is not optional.

Benchmarks differ sharply by sector, so compare like with like. Supermarket retail works on 25% to 35% gross and only 2% to 4% net. Restaurants take 60% to 70% gross but keep 5% to 10%, while pubs run 70% to 75% gross on beer with 8% to 12% net. Clothing retail sits at 50% to 60% gross and 5% to 12% net. At the other end, tech and SaaS businesses reach 70% to 90% gross and 15% to 25% net, consultancy 50% to 75% and 15% to 30%, manufacturing 25% to 40% and 5% to 15%, and construction survives on thin margins of 15% to 25% gross and 2% to 5% net. A wide gap from your own sector's norm usually signals a pricing or cost problem.

Corporation Tax then applies to the profit the statement produces. The Small Profits Rate of 19% covers companies with profits under £50,000, the main rate of 25% applies above £250,000, and Marginal Relief slides the effective rate between the two in the band between. A company on £75k of profit pays £15,725, an effective 21%. At £150k it is £34,225, or 22.8%. At £300k the flat 25% gives £75,000. A great many smaller UK companies sit inside the Marginal Relief band, where the timing of expenditure is worth thinking about carefully.

One thing the statement will not tell you is whether the business can pay its bills. A profit and loss runs on the accrual basis, recognising revenue when it is earned rather than received and costs when they are incurred. Cash flow tracks the money itself. A company can show a healthy profit while £150k sits unpaid by customers and a supplier invoice falls due tomorrow. Companies House data puts 80% of UK small business failures down to cash flow rather than profitability, which is the argument for keeping a 13-week rolling forecast alongside the P&L.