Basic Finance Module 2 Profit and Loss Account

m

÷

à ÷

A financial statement that summarizes the revenues,

costs and expenses incurred during a specific period of
time - usually a fiscal quarter or year.
These records provide information that shows the ability
of a company to generate profit by increasing revenue
and reducing costs.
The P&L statement is also known as a "statement of
profit and loss", an "income statement" or an "income and
expense statement".
Thursday, July 29, 2010 Saama-Confidential Page 2

à ÷ G

Refers to a company's net earnings,
net income or earnings per share
(EPS).
Bottom line also refers to any actions

that may increase/decrease net
earnings or a company's overall
profit. A company that is growing its
net earnings or reducing its costs is
said to be "improving its bottom line".

à ÷
The amount of profit that a company produces during a

specific period, which is usually defined as a quarter
(three calendar months) or a year. Earnings typically refer
to after-tax net income.
Ultimately, a business's earnings are the main
determinant of its share price, because earnings and
the circumstances relating to them can indicate
whether the business will be profitable and successful in
the long run.

à
G

G

An indicator of a company's financial performance
which is calculated in the following EBITDA
calculation:
EBITDA is essentially net income with interest, taxes,

depreciation, and amortization added back to it,
and can be used to analyze and compare profitability
between companies and industries because it
eliminates the effects of financing and accounting
decisions.

A common misconception is that
EBITDA represents cash earnings.
EBITDA is a good metric to
evaluate profitability, but not cash
flow.

what ÷ -

-
A company's potential cash earnings if its

capitalization were unleveraged (that is, if it had no debt).
NOPAT is frequently used in economic value added
(EVA) calculations.

à ÷ i i
A calculation used to assess a company's efficiency at

allocating the capital under its control to profitable
investments.
The return on invested capital measure gives a sense of

how well a company is using its money to generate
returns.
Comparing a company's return on capital (ROIC) with its
cost of capital reveals whether invested capital was used
effectively.

The general equation for ROIC is as follows:
net income- dividend

----------------------------------
Total capital
Also known as "return on capital"

àhat Does - - Mean?
A company's total earnings (or profit).
Net income is calculated by taking revenues and adjusting for the cost
of doing business, depreciation, interest, taxes and other expenses.
This number is found on a company's income statement and is an

important measure of how profitable the company is over a period of
time.
The measure is also used to calculate earnings per share.
Often referred to as "the bottom line" since net income is listed at the
bottom of the income statement.
In the U.K., net income is known as "profit attributable to
shareholders".
Net Income
Net income, like other accounting measures, is

susceptible to manipulation through such things as
aggressive revenue recognition or by hiding expenses.
àhen basing an investment decision on net income
numbers, it is important to review the quality of the
numbers that were used to arrive at this value.

àhat Does Profitability Ratios Mean?
A class of financial metrics that are used to assess a

business's ability to generate earnings
as compared to its expenses and other relevant costs
incurred during a specific period of time.
For most of these ratios, having a higher value relative to a
competitor's ratio or
the same ratio from a previous period is indicative that the
company is doing well.

4 Levels of Profit
In the income statement, there are four levels of

profit or profit margins ±
gross profit, operating profit, pretax profit and net
profit after tax
The term "margin" can apply to the absolute number
for a given profit level and/or the number as a
percentage of net sales/revenues.
Profit margin analysis uses the percentage
calculation to provide a comprehensive measure of
a company's profitability on a historical basis (3-5
years) and in comparison to peer companies and
industry benchmarks

= Gross Profit * 100 Turnover

Remember:
Turnover = Sales
Gross Profit = Turnover - Cost of Sales
The gross profit margin ratio tells us the profit a business
makes on its cost of sales, or cost of goods sold. It is a very
simple idea and it tells us how much gross profit per $1 of
turnover business is earning.
Gross profit is the profit we earn before we take off any
administration costs, selling costs and so on. So we should
have a much higher gross profit margin than net profit margin.

àhat is Profitability and profit
Profitability is a term used by corporations and financial

experts when they discuss whether to make or sell a good
or service. It is an expectation of making more income
from sales of the good or service than they spend
performing the services or making the goods. Profitability
is different from "profit" in that profitability is an idea or
expectation while the "profit" is the physical result.
An example would be during debt consolitation -

profitability would be used to describe the steps you would
take to get out of debt.


conclusion

summary
À


Basic Finance Module 2 Profit and Loss Account

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Basic Finance Module 2 Profit and Loss Account

Încărcat de

Drepturi de autor:

Formate disponibile

m   

A financial statement that summarizes the revenues,

Thursday, July 29, 2010 Saama-Confidential Page 2

 Bottom line also refers to any actions

Thursday, July 29, 2010 Saama-Confidential Page 3

The amount of profit that a company produces during a

Thursday, July 29, 2010 Saama-Confidential Page 4

EBITDA is essentially net income with interest, taxes,

Thursday, July 29, 2010 Saama-Confidential Page 5

Thursday, July 29, 2010 Saama-Confidential Page 6

A company's potential cash earnings if its

Thursday, July 29, 2010 Saama-Confidential Page 7

 A calculation used to assess a company's efficiency at

 The return on invested capital measure gives a sense of

Thursday, July 29, 2010 Saama-Confidential Page 8

net income- dividend

Also known as "return on capital"

Thursday, July 29, 2010 Saama-Confidential Page 9

A company's total earnings (or profit).

This number is found on a company's income statement and is an

The measure is also used to calculate earnings per share.

Net income, like other accounting measures, is

Thursday, July 29, 2010 Saama-Confidential Page 11

 A class of financial metrics that are used to assess a

Thursday, July 29, 2010 Saama-Confidential Page 12

In the income statement, there are four levels of

      = Gross Profit * 100 Turnover

Thursday, July 29, 2010 Saama-Confidential Page 14

 Profitability is a term used by corporations and financial

An example would be during debt consolitation -

Thursday, July 29, 2010 Saama-Confidential Page 15

Thursday, July 29, 2010 Saama-Confidential Page 16

Thursday, July 29, 2010 Saama-Confidential Page 20

Thursday, July 29, 2010 Saama-Confidential Page 21

S-ar putea să vă placă și

m

Bottom line also refers to any actions

A calculation used to assess a company's efficiency at

The return on invested capital measure gives a sense of

A class of financial metrics that are used to assess a

= Gross Profit * 100 Turnover

Profitability is a term used by corporations and financial