Comparing P&L Statements
It is essential to compare income statements from several accounting periods in order to maximize correctness. The reason for this is that any changes that occur over time in terms of revenues, operational costs, spending on research and development (R&D), and net earnings are of greater importance than the figures themselves. A company’s expenses may grow at a considerably quicker rate than its sales, for instance, even while the company’s revenues may continue to grow at a consistent rate. Investors can further examine the financial health of a firm by comparing the profit and loss statement of one company with that of another company operating in the same industry and having a size that is comparable to the first company. It is possible, for instance, that doing so will disclose that one firm is more effective at minimizing expenditures and has a greater potential for growth than the other.
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