P&L Statement Review and Analysis Tips Checklist

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P&L Statement Review and Analysis Tips Checklist

1. Review Revenue Recognition: Verify that revenue is recognized correctly in accordance with accounting standards.
2. Analyze Cost of Goods Sold (COGS): Ensure COGS is accurately calculated and properly matched to revenue.
3. Examine Operating Expenses: Investigate all operating expenses, including salaries, rent, utilities, and other costs.
4. Verify Non-Operating Income/Expenses: Check for non-operating income or expenses, such as interest, taxes, and investments.
5. Evaluate Profit Margins: Analyze profit margins by product, service, or segment to identify areas of improvement.
6. Analyze Cash Flow: Compare cash flow with net income to ensure that profits are being translated into cash.
7. Look for Trends: Identify trends in revenue and expenses over time to inform future business decisions.
8. Verify Accounting Policies: Confirm that accounting policies and procedures are consistent and compliant with relevant standards.
9. Conduct Ratio Analysis: Calculate key financial ratios, such as the debt-to-equity ratio or return on equity (ROE), to assess company performance.
10. Consider Industry Benchmarks: Compare financial results with industry averages to ensure competitiveness.
11. Review for Seasonality and One-Time Items: Account for seasonal fluctuations and one-time events that may impact profit and loss.
12. Evaluate Management's Commentary: Review management's discussion of the P&L statement to gain insight into their perspective on company performance.

Improved financial decision-making Enhanced accountability and responsibility Increased accuracy in forecasting and budgeting Timely identification of inefficiencies and areas for cost savings Better alignment with business objectives and strategies Streamlined processes and reduced costs Optimized resource allocation and utilization Faster detection and mitigation of potential financial risks Simplified audit and compliance processes

Revenue Recognition

• Accrual vs Cash basis accounting
• Revenue streams identification
• Timing of revenue recognition

Cost of Goods Sold (COGS)

• Direct and indirect costs distinction
• COGS calculation methods
• Periodic vs Interim adjustments

Operating Expenses

• Operating and non-operating expenses separation
• Expense classification and categorization
• Fixed, variable, and semi-variable expense types

Depreciation and Amortization

• Depreciable asset identification and valuation
• Useful life estimation and method selection
• Accumulated depreciation calculation and adjustments

Interest and Taxes

• Interest income and expense recognition
• Tax laws and regulations consideration
• Current vs deferred taxes distinction

Asset Impairment and Disposal

• Asset carrying value assessment
• Loss evaluation and provision establishment
• Disposal or write-off procedures