Returning the Relevancy of the P&L

A Proposed Model

Ehud Lurie, CPA (Isr.), and Shlomi Shuv, CPA (Isr.)

Profit and loss (P&L) statements have always been significant for most reporting entities as the basis for evaluating the ability to generate future profits. This is evidenced by the various earnings multipliers that are often used in appraising companies and determining acquisition prices. Executive pay is often based on performance measured by the P&L. Performance under financial covenants and financial ratings relies on current profitability ratios. In addition, a company's P&L is the report most reviewed and examined by investors, credit providers, analysts, and the financial press. Although there have been many changes in performance measurement during the past few years, such as comprehensive income reporting, earnings per share continues to be calculated on the basis of net profit (loss) and likely will in the future.