Analyzing business performance

As you can see in the title of this course, there's a single document that is key to the analysis of the business performance of a company and that is the P&L, or profit and loss statement, also called the income statement. In this document you can find the revenue the company is generating and the expenses it has to make in order to operate the business. This single document, of course, is not the only source of information telling you how the company is doing, but it will tell you how good the company is at serving its customers as well as how good it is at retaining any profit from it.

In the P&L, there are specifically three elements that can be analyzed: revenue, gross margin and operating expenses. If you're not familiar with those notions a great place to start is by following the Financial Literacy: Reading Financial Reports course in the Lynda.com training library. In that course you will learn everything you need to know about income statements and more. To make a long story short, the revenue element of the P&L will tell us how well the company is doing at growing, how each action taken from a sales perspective is delivering and where to look if the performance is not to the level we expect it.

The gross margin is what is left to the company once all the product-related costs have been paid. This is where we see if a product is profitable or not. Last are the operating expenses, which cover everything that is to be paid to make the company function and is not related to production, such as office space, salaries, and so on. By analyzing those elements, the underlying factors that constitute them, as well as financial concepts related to the P&L, we will learn the foundation that is necessary to dive into a company's performance, and extract from it the concrete actions that need to be taken.