What does the profit and loss statement actually represent?
• The income statement is drawn up to arrive at a measure of the profitability of the business over a given time • The primary benchmarks are Gross Profit and net profit • Gross Profit measures what remains after deducting from sales the suppliers’ cost of goods plus the costs of getting the goods to the point of sale e.g. freight • Net Profit measures what remains after general operating expenses are deducted from the Gross Profit • These operating expenses are in the main salaries and wages, occupancy costs, advertising, depreciation of fixtures and fittings, wrapping & bags and energy costs What you are left with is your final take home profit. The Key Financial issues relating to the Income Statement are pricing, margin maintenance and expenses control. What does the Balance Sheet represent? What is the fundamental value of understanding your business profitability? • To distribute to owners by way of dividends, extra salary etc.; the profits of the business • To purchase new asset
