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Financial Statement Basics

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Interest, Taxes, Other Gains and Losses, and Net Profit

2:21 with Michael Watson

Introducing the Interest, Taxes, Other Gains and Losses, and Net Profit line items and how to know if a business is profitable.

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    All right, we are almost done with the profit and loss statement. 0:00
    But we have a few more line items to cover. 0:04
    Interest in taxes are exactly what they sound like. 0:07
    Interest is an expense of business has for the interest payments they make for 0:11
    any debit facilities they have. 0:15
    Taxes are the expense for any taxes the business has to pay. 0:17
    Tax is a massive topic in accounting, and there's a ton of complexity to it, 0:22
    because of the different tax laws around the world. 0:26
    Furthermore, tax accounting rules are sometimes different than 0:30
    book accounting rules. 0:34
    So, it's just a complicated topic we don't have time to cover in this course. 0:35
    In the teacher's notes, there are some links to articles about this, 0:40
    if you are inclined to explore it further. 0:43
    Other gains and losses are expenses that don't fit into the categories above. 0:47
    Sometimes, these are charges related to a restructuring, or for 0:52
    winding down a business that you are no longer going to be operating. 0:57
    Maybe it's a write-off charge. 1:01
    But after all the COGS, SG&A, depreciation and amortization, interest, taxes, and 1:03
    other gains or losses are accounted for, we arrive at the net profit line. 1:10
    Or sometimes is called net income. 1:15
    This is the profit profit. 1:19
    If a company is profitable, you will see a net profit and a positive number here. 1:21
    If the company is not profitable, then it is a net loss, and 1:27
    you will see a negative number here. 1:30
    This line item is the bottom line, literally, figuratively, 1:33
    whatever you want to say. 1:37
    So, when people refer to the bottom line in finance and 1:39
    accounting, this is typically what they say. 1:42
    We also see here another example of the difference between gross and net. 1:46
    Gross profit is a profit metric after COGS have been accounted for. 1:51
    But there's lots of other costs before we get to net profit. 1:56
    You use these metrics to understand different things. 2:00
    But don't make the mistake saying, hey, we made a gross profit this quarter so 2:03
    we're profitable. 2:08
    That's wrong. 2:09
    Okay, pretty cool how much information there is on the PNL, right? 2:11
    We're going to move on to a quiz now and 2:15
    in the next stage of this course, we'll introduce the balance sheet 2:17

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