P&L vs Balance Sheet — What Each One Tells You
The two core financial statements answer different questions. Here’s how the P&L and balance sheet differ.
On this page
A company’s two headline financial statements — the Profit & Loss (P&L) and the balance sheet — answer different questions. Knowing which tells you what is the first step in reading any annual report.
The P&L — performance over a period
The P&L (income statement) shows how the business performed over a period (a quarter or year): revenue, costs and the resulting net profit. Think of it as a video of the year — what came in and what went out.
The balance sheet — position at a point in time
The balance sheet is a snapshot at a date of what the company owns (assets) and owes (liabilities), with the difference being shareholders’ equity. Think of it as a photo on the last day of the period. It follows: Assets = Liabilities + Equity.
How they connect
The profit from the P&L flows into the balance sheet as retained earnings (profit kept in the business), linking the two. And the cash flow statement reconciles profit with actual cash.
What to read each for
- P&L — is the company growing and profitable? Check revenue growth and margins.
- Balance sheet — is it financially sound? Check debt (debt-to-equity), cash, and short-term health (current ratio).
Read all three together — see how to read a balance sheet and how to read an annual report. Education only, not a recommendation.
