Understanding your P&L
Updated August 2, 2026
The profit and loss statement lives in the Operating Model view. It flows top to bottom, from revenue down to your bottom line. Here is what each line means and where it comes from.
The P&L, line by line
| Line | What it is | Driven by |
|---|---|---|
| Revenue | Total recurring + services revenue | Your revenue assumptions |
| COGS | Direct cost of delivery: hosting, payment fees, per-customer support | Expenses + support headcount |
| Gross profit | Revenue − COGS | Calculated |
| Operating expenses | R&D, S&M and G&A, salaries, ad spend, overhead | People + Expenses |
| EBITDA | Earnings before interest, tax, depreciation, amortization | Calculated |
| Depreciation & amortization | Straight-line write-down of capitalized assets | Calculated |
| EBIT | Operating income after D&A | Calculated |
| Taxes | Applied to pre-tax income | Your tax rate |
| Net income | The bottom line | Calculated |
Reading it well
- Gross margin (gross profit ÷ revenue) is the health signal for a SaaS business. Strong SaaS runs high gross margins; if yours looks low, check what you have loaded into COGS.
- The OPEX split (R&D / S&M / G&A) shows where your money goes. Heavy S&M means you are buying growth; the question is whether the payback justifies it.
- EBITDA vs. net income. EBITDA shows operating profitability; net income includes tax and non-cash items. Early-stage models often show negative EBITDA while you invest in growth, that is expected, and runway is what keeps it safe.
Profit is not cash. A profitable month can still burn cash (and vice versa) because of timing, annual prepayments, for example. Always read the P&L alongside cash flow and runway.