3.5.1 - Interpretation of financial statements Flashcards
What is a Statement of comprehensive income
- This is part of the legal documents that must be published each year by ltd or plc companies.
- This document shows if the business has made a profit or a loss during the year
What is revenue
- Revenue is money into the business through ordinary
trading. It is also known as turnover or income. - Formula for sales revenue is Q x P
What is gross profit
- GP = Revenue – cost of sales
- The cost of sales is the cost of the stock that is to be sold as part of ordinary trading for the business
What are expenses
- Expenses are costs to the business that have nothing to do with stock or the making of the product
Examples are;
* Administration
* Advertising
* Petrol
What is operating profit
- Operating profit = GP-expenses
- Operating profit is a true measure of how much profit (or loss) the business has made over the year
- before tax is deducted
- This information is used by potential investors of the business to see how hard their money would work if it was invested into the business
What are shareholders
- Shareholders – want to know the final profit figure which dividends will be paid out on
What are investors
- Investors – want to know the profitability of the business – is it worth investing or will it be a risk?
What is a fixed asset
An item that the business owns that it intends to use for more than one year in trading e.g. van, machine
What are current assets
Items in the business which it intends to turn into cash within a year, include stock, debtors, cash
What is stock
Stock includes work in progress and finished goods not yet delivered to customers
What are Debtors and Prepayments
Debtors owe the business and will pay within a year, a prepayment may be on a bill that has to be paid in advance of the year it is used
What are capital reserves and share capital
Share capital, amount of money paid by shareholders for shares when originally issued, not the current value of shares Capital reserves are the increase of some fixed assets, for example land may be worth more now than it was purchased for years ago, that value must go somewhere
What are creditors
Creditors are suppliers to the business that money is owed to
How will shareholders use the financial information
will analyse the accounts and decide whether their investment capital is being used effectively
How will governments use the financial information
will use the financial information to calculate the amount of tax (VAT and corporation tax) that a company has to pay
