Profit and Loss / Income Statement Flashcards
Net profit
Bottom line of P&L
Profit after all costs deducted.
Net profit = Sales - COS - overheads - depreciation, tax, interest
Gross profit
Gross Profit = Sales/revenue - COS
Profit directly from the sale of the product or service (before overheads are deducted).
Gross profit lies between the costs and expenses.
VAT
should not be included on the P&L. Use sales figures excluding VAT.
Cost of Sales COS
Cost of Goods Sold COGS
Costs directly associated with making the product/service.
COS = Opening stock + purchases - closing stock
Includes wages, supplies, materials
Gross Margin
Gross Margin = Gross Profit/Sales (as a %)
Represents the percentage of sales revenue that the company retains after the costs associated with producing the product/service. The higher the better.
EBITDA
Earnings before interest, tax, depreciation and amortisation.
EBITDA = Sales - COS - Overheads
Loan
Loan interest is included on the P&L.
Loan repayment is not included on the P&L.
Depreciation
The amount an asset (capital expenditure) falls in value each month/year.
Doesn’t apply to buildings, only fixtures and fittings.
The matching principle
Match the costs associated with the associated sale.
Expenses and costs should be recorded in the period they occur, not necessarily when they are paid.
Sales are recorded when the product/service is delivered.
Depreciation and fraud
Depreciating an asset more slowly increases short-term profitability.
Very subjective
Amortisation
Same as depreciation, but for intangible assets.
e.g. patents, goodwill, copyrights
P&L KPIs
Total monthly sales (excl. VAT)
Gross margin
Overheads as a % of sales
Net profit as a % of sales
KPI: Overheads as a % of sales
Overheads/sales (x100)
KPI: Net profit as a % of sales
Net profit/sales (x100)
Operating expenses/overheads
Costs that are not directly associated with producing the good or delivering the service.
E.g. salary of managers, rent, depreciation, sales, admin, marketing
