Income statements and balance sheets Flashcards
what is the income statement
(income statement)
- financial history book
- measures how well or how badly the business has done over the previous year
COGS (cost of good sold) definition
(income statement)
how much it costs to buy in the stock that was sold (variable costs)
overheads definition
(income statement)
are essentially fixed costs
operating profit definition
(income statement)
the profit made from the business completing its trading activities
- may be referred to as “trading profit” or “net profit”
gross profit definition
(income statement)
revenue - COGS
this can be caluclated as a ratio (gross profit margin)
what does it mean if your revenue and your COGS are close together
(income statement)
means that the business has low profit margins
- an example of these would be supermarkets
(pile it high and sell it cheap)
what are financing costs or income
(income statement)
interest on loans and money
dividends definition (income statement)
money payed to shareholders as a return on their investment
how does an income statement work
just a table that starts with revenue that then gets sliced through by costs, taxes, dividends, interest rates. which shows operating profits and trading profits.
profit quality definition
how likely the company is to repeat the profit made this year
what is a good profit quality and example
one which comes from the operating or trading activities of the business
e.g supermarket sales or coffee shop sales
one off items definition
things that happen once
- these can be good or bad (boosting or reducing the final profit)
what is an example of a way profits can be boosted
from selling assets - one off item
what 2 things does the balance sheet tell us
(balance sheet)
- where the money came from (risking your own, borrowing someone elses)
- what we did with it (things we mean to keep, things we mean to turn into cash quickly)
share capital - equity definition
(balance sheet)
made up of owners funds from selling shares and profits reinvested into the business overtime
