Profit or loss for the period

What it means

Profit or loss for the period is the difference between revenue and expenses: a profit where revenue is higher, a loss where it is not. It is reported before and after tax, and in the balance sheet it sits inside equity.

It is neither the tax base nor a cash balance. The tax base is derived from pre-tax profit through add-back items and deductible ones, and the bank balance differs from that profit by the movement in receivables, payables and stock.

The profit or loss does not say how the operations themselves are doing: it includes depreciation, interest, exchange differences and one-off items. To compare companies or years, subtotals are therefore used, such as the operating result or EBITDA, which separate financing and accounting estimates from the business itself.

How it works in practice

At the close, expense and revenue accounts are closed to the profit and loss account and the result passes into the balance sheet; the statement itself splits it into operating and financial activity. The tax return starts from the pre-tax figure.

In the new period the result moves to the account for profit pending approval and waits for the general meeting. Only the approval of the statements settles whether it goes to retained earnings, against losses, into funds or out as dividends.

The owner of an s. r. o. wants to know in summer how much he has made so far. An interim result only makes sense if it contains monthly depreciation, annual costs spread through accruals and deferrals, and estimated items for services not yet invoiced. Without them one month shows a profit and the next a loss, depending only on when the invoice arrived.

What to watch out for

A profit in the statements does not mean there is anything to pay out. It may be distributed only so far as equity after the payment stays above share capital plus the reserve fund, and an accumulated loss from earlier years eats into that room first; anything beyond the line breaches the Commercial Code, has to be returned, and the directors who approved it stand behind the repayment.

The company closes with a loss several years running and nobody watches equity shrink. Once the ratio of equity to liabilities falls below the statutory threshold the company is in crisis and shareholder loans may not be repaid; a director who repays them anyway is liable for their return.