1 Accounting statement showing s firm's sales revenue over a trading
period and all the relevant costs generated to earn that revenue. PLC's
use income statements, small firms use profit and loss accounts.
2 Who Wants to See the Income Statements?
2.1 Shareholders (assessing profitability)
2.2 Gov agencies (tax authorities require data
on P&L to calculate corporation tax)
2.3 Suppliers (need to know financial position to establish
their reliability, stability and creditworthiness)
2.4 Potential shareholders and bankers
3 The Uses of Income Statements
3.1 Measure success of a business compared
to previous year or another
3.2 Assess actual performance
compared with expectations
3.3 Help obtain loans from banks
3.4 To enable owners and managers to
plan ahead i.e. future investment
4 Measuring Profit
4.1 Profit = Revenue - Costs
4.2 Gross Profit
4.2.1 Measure of the difference between income
(sales revenue) and the cost of
manufacturing/ purchasing the products sold.
4.2.2 Can compare with other
companies, maybe find
cheaper supplier or boost
4.3 Net Profit
4.3.1 /Operating Profit.
4.3.2 Net Profit = Gross Profit - (expenses + overheads)
4.3.3 Takes everything into account. If small net profit, business may
need to control costs such as salaries/ distribution