Slides 7 Flashcards
What is defined as gains or losses from both normal and abnormal company operations over a period of time?
Profit and Loss Account
The Profit and Loss Account measures the overall performance of a company during a specific accounting period.
How is operating profit calculated?
Total revenues minus total costs
This calculation is the basis for determining the operating profit over an accounting period.
What does EBITDA stand for?
Earnings Before Interests, Taxes, Depreciations, Amortizations
EBITDA is a measure of a company’s overall financial performance.
What are the main components that contribute to total revenues?
Sales of goods and services to customers
Revenues are crucial for a company’s growth and financial health.
What are operating costs for a manufacturer?
Expenses incurred for raw materials, labor, and manufacturing overhead
Operating costs vary by industry, affecting profitability.
What are overhead costs?
Ongoing expenses not directly related to production
Examples include rent, insurance, and salaries for non-production staff.
What does depreciation indicate?
How much of an asset’s value has been used up
Depreciation is accounted for over the useful life of an asset.
What is amortization?
Spreading out of capital expenses for intangible assets over time
It allows companies to write off the cost of intangible assets gradually.
What does EBIT stand for?
Earnings Before Interests and Taxes
EBIT represents a company’s operating profit and is critical for assessing financial performance.
What are interest expenses?
Costs incurred by firms to borrow money from financiers
Interest expenses can significantly impact net income.
What is pre-tax income?
Earnings before payment of taxes
Companies may use various techniques to minimize reported pre-tax income.
What is net income?
The bottom line indicator of a company’s profitability
It reflects the total revenue after all expenses, including taxes and dividends.
What are dividends?
Part of earnings distributed to shareholders in cash
Companies may choose to pay high or low dividends based on their financial strategies.
What are retained earnings?
Percentage of net earnings not paid out as dividends
Retained earnings are reinvested in the business or used to pay down debt.
Fill in the blank: The Profit and Loss Account measures revenues minus operating costs to determine __________.
EBITDA
This calculation is essential for understanding a company’s profitability.
List the stakeholders influenced by the Profit and Loss Account.
- Shareholders
- Banks
- State
- Suppliers
- Customers
- Employees
Each stakeholder group has specific interests in a company’s financial performance.
True or False: Net income is also referred to as earnings after taxes.
True
This term summarizes a company’s profitability after all expenses and taxes have been accounted for.
