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Financial statement analysis
Financial statement analysis questions
Financial statement analysis
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Financial Factors The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It is a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result -- which is either a profit or a loss. For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It is formed by listing your financial projections in the following manner: 1. Income -- Includes all the income generated by the business and its sources. 2. Cost of goods -- Includes all the costs related to the sale of products in inventory. 3. Gross profit margin -- The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue. 4. Operating expenses -- Includes all overhead and labor expenses associated with the operations of the business. 5. Total expenses -- The sum of all overhead and labor expenses required to operate the business. 6. Net profit -- The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities. 7. Depreciation-- Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital. 8. Net profit before interest -- The difference between net profit and depreciation. 9. Interest -- Includes all interest derived from debts, both short-term and long-term. Interest is determined by the amount of investment within the company. 10. Net profit before taxes -- The difference between net profit before interest and interest. 11. Taxes -- Includes all taxes on the business. 12. Profit after taxes -- The difference between net profit before taxes and the taxes accrued. Profit after taxes is the bottom line for any company. Following the income statement is a short note analyzing the statement.
Profit: How much did they make? Profit is the net earnings which is found on the income statement. To find the net earnings
...e overall performance of the company given that the higher the margin, the more likely that the company will retain a profit after taxes have been withdrawn. It is calculated by subtracting the cost of interest from the earnings before income taxes.
The amount each company should recognize as expense is given in a given year depends on the following factors
Alex goes back to his office and shares this information with a man from production and a lady from accounting. They all come to the conclusion that “throughput is the money coming in” “inventory is the money currently inside the system” and “operational expense is the money we have to pay out to make throughput happen.”
Gross Profit which is recorded in income statement is the unrealized profit which has been computed by deducting the cost of goods sold from revenue portion. The Gross Profit of Cisco System has been increased during the period of 2013-2015. During the period of 2015, the Gross Profit of Cisco System has been increased to three point zero million dollars in 2015 in contrast with its base year of two point nine million dollars in 2013. This increase in revenue determines the rise of zero point eight two percent during the period of 2013-2015. Such increase in Gross Profit determines the Cisco ability to control its cost of goods sold by decreasing the cost being arising due to raw materials and
Costing as defined by Blocher, Stout, Juras, and Cokins (2016) ‘is the process of accumulating, classifying, and assigning direct materials, direct labor, and factory overhead costs to cost objects, which most commonly are products, services, or projects” (p. 96). Further relayed by Blocher et al. (2016), is the type of costing system a company employs depends on the industry, product or service manufactured or provided, and the benefit versus the cost of the particular system chosen. Job and process costing systems are two different avenues by which companies can accumulate their costs as a first step in determining accurate pricing for their product or service. While one method tracks costs that can be specifically attached to a unique product, batch of products, or service, and then also allocates the overhead to the individual units or services, the other method also tracks the direct costs but accumulates the overhead costs for the shared services used to produce indistinguishable products, then assigns them to a functional department, and from there assigns them to products. Job and process costing system characteristics are examined in further detail, and examples of companies that use each are provided.
Overhead expenses are the costs of running a business that are not tied directly to selling a specific product or service. Examples of overhead include rent, telephone, utilities, etc. Sometimes overhead expenses get out of hand relative to the revenue the business produces. High overhead expenses can hurt your business’s cash flow.
Profit is attained by [Total Revenue (the amount a firm receives for sales of it’s output) divided by Quantity minus Total Cost divided by Quantity] multiplied by Quantity. Or, Profit will equal (Price minus Average Total Cost) multiplied by Quantity. If the Average Total Cost is larger than the price than the firm will face either raising price or with a short-term profit loss-shutdown. If profit loss is in effect with the firms long-run Average Total Cost then the firm will have to cut their losses and exit the market.
Total cost is all of the expenses incurred in the production of a product, to include fixed and variable costs. Fixed costs, are expenses that are constant and do not change from month to month regardless of the amount of products sold. For instance, the rent of the factory is considered a fixed cost, for the reason that, the rent must be paid whether products are produced and sold or not. Variable costs,
The gross profit margin is a useful tool that helps to evaluate the financial performance of a business. Ideally, a company’s gross profit margin ratio should be stable in order to be able to pay for its expenses and generate profit. Dixons Retail plc shows stability in both statements. The results of 7.32% (2013) and 7.47% (2014), indicates that the company has not been going through any forceful financial strategy changes that can affect the business performance. The comparison of
Cost of products directly or indirectly used in the production process which might or might not be a part of the final product.
Therefore, the amount of profit obtained is somewhat arbitrary. However, cash flow is an objective measure of cash and it is not subjected to a personal criterion. Net cash flow is the difference between cash inflows and cash outflows; that is, the cash received into the business and cash paid out of the business (Fernández, 2006). Whereas, net profit is the figure obtained after expenses or cost of resources used by the business is deducted from revenues generated from the business operations activities. Nonetheless, the figure for revenue and cash are not entirely cash, some of the items may be sold on credit and some of the expenses are not paid up
But, it has to see whether is they having an improvement it’s to sell at a higher value in order to earn more profit in their business or not, if it is to earn more profit in the business then it is business income, other else it’s not business income, it should call capital income. (Alan 2004, p. 295; HM Revenue & Custom et al., 2011)
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
Net Operating Profit is considered instead of Net Profit so as to highlight the economic value of a firm.