As a business owner for the last 35 years, I can tell you the most important scoreboard for your business is the P&L.  By understanding it, you will see how your business is performing, your current business model, whether a more profitable business model exists, and the impact of that new business model.  There are several elements that make up the P&L:

• Sales: The exchange of a product or service for money.  In order to have more sales, business owners must have more capacity (ability to produce more product/deliver more service).  Many times business owners run into capacity problems, which causes sales to dip.   
• Less: Cost of Goods Sold - The direct costs related to the creation of the product or service you sell.  Generally, this should include all material costs associated with the product, all direct labor costs (including payroll taxes, worker’s comp, and fringe benefits tied to that direct labor), subcontractor costs related to the production of the product, and other costs related to the product.   
• Equal: Gross Profit - Sales less of cost of goods sold, the core metric of your profitability.  The more gross profit dollars you can generate the more your net profit accelerates because the Overhead is basically fixed. 
• Less: Overhead - Fixed costs to run a business.  These are costs that stay the same from accounting period to accounting period.  There are some exceptions to this, like advertising expenses.  By keeping Overhead consistently low and as sales increase, your Gross Profit will fall to the bottom line.  This will turn a good year into a great year.  You will be successful if you watch rent/occupancy costs, advertising/marketing, administrative or indirect payroll, administrative or indirect labor burden, and insurance.     
• Equals: Operating Income (EBIT) - Sometimes called earnings before interest and taxes, it is the net profit delivered through the core operations of a business.  This is the line of the P&L that tells us how well the business is performing.   
• Less: Interest, Tax Depreciation and Amortization - Interest refers to the cost of borrowing money for any source including credit cards.  Obviously, taxes are income taxes paid or accrued to any state, local, or federal government.  Depreciation is the expired cost of the useful life of fixed assets like vehicles, equipment, leasehold improvements, machinery, furniture, or fixtures used in a business.  Lastly, Amortization is the expired cost of the useful life of intangible assets like trademarks, patents, closing costs, covenants not to compete, the value of a customer list or goodwill used or incurred in a business. 
• Equals: Net Income - The very bottom line of how the business taken as a whole performed.  Don’t just look at the bottom line on the P&L and nothing else because you will not understand the full picture of how your business is performing

Since you will be hearing conflicting information about what to include in your calculations, consistency is key.  As long as you’re consistent in the components of your calculations (especially with Overhead and Gross Profit), you will not have any issues or discrepancies.

Overall, the business owner who understands every element of their P&L will see the most success.