Reading a P&L.
This is a real profit & loss statement — the scoreboard for a business. Read it top to bottom, then answer the questions. Once you can read one of these, you can read almost any company’s numbers.
Profit & Loss statement
| Revenue (turnover) | £480,000 |
| Cost of sales (materials & subcontractors) | −£288,000 |
| Gross profit | £192,000 |
| Wages (office & admin) | −£96,000 |
| Premises (rent & utilities) | −£24,000 |
| Vehicles & fuel | −£18,000 |
| Insurance | −£9,000 |
| Admin & other | −£15,000 |
| Total overheads | −£162,000 |
| Operating profit | £30,000 |
Everything below is based on this statement. Take a minute to read it, then answer.
Looking at the bottom line, did this business make a profit or a loss?
Why: Operating profit is £30,000 — income was greater than costs, so it's a profit.
What does 'gross profit' (£192,000) actually mean here?
Why: Gross profit is what's left after the direct cost of doing the work — but before overheads like rent and admin wages.
Which is the single biggest overhead?
Why: Wages at £96,000 dwarf the others — usually the biggest cost in a people-based business.
Operating profit is £30,000 on £480,000 of revenue. Roughly what profit margin is that?
Why: 30,000 divided by 480,000 is about 6%. Thin margins are normal in the trades, which is exactly why cost control matters.
If materials suddenly got more expensive, which line moves first?
Why: Materials are part of cost of sales, so that line rises first — squeezing the gross profit.
Nice start.
We’ll do the same quiz at the end of the week — you’ll spot the difference.
Read the numbers?
Mark it complete and we’ll bounce you back to your Finance dashboard with the stamp added. Ask your buddy to show you a real Watkins P&L if you’d like to see the genuine article.