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14 Cards in this Set
- Front
- Back
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Income statement |
Reports a profit or a loss |
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Shows: Money going into the company (revenue) - Sales income: Selling goods and services, cash payments, sales on credit |
Shows: Money leaving the company (expenses) - Production, wages, marketing and raw materials |
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Healthy business indicated how? |
Business generates more revenue than the increase in rate of inflation |
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What are Public Limited Companies (PLC's) required to publish? |
Their accounts have to be made available to anyone : Shareholders, potential shareholders or competitors. |
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Gross profit = Revenue - cost of sales |
Operating profit = Revenue - cost of sales - operating expenses |
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Profit after tax |
Profit for the year (whats left over) |
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How can these measures be used to measure financial performance? |
. |
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Gross profit |
- Profit from making and selling product - Gross profit is low, managers need to look at a way to reduce the cost of making the product.. Or increase selling price |
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Operating profit |
If Op profit much lower than gross this can be a sign that the company's operating expenses are a weak area. Managers must take steps to reduce these expenses by (reducing marketing costs). Banks look at this to assess risk of lending P's |
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Profit after tax.. |
Shows if the business is profitable or not |
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Businesses have 2 main ways they spend their profits : |
1 Pay dividends to shareholders 2 Keep profit in the business as retained profit |
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Shareholders |
Want high dividends Good return on investment Low dividends = sell of shares |
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Retained profit |
Spend on things that will likely increase their profits (fixed assets) - Machinery, Premises Allows increased production: Increased revenue and profits for the future |
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A good balance between the two |
Pay a proportion of their profit to shareholders and reinvest the rest in the business to fund growth |
