How to Read a Financial Statement II
The Profit and Loss Account summarizes a business’s performance over a period (usually a year).
Sales (turnover): total sales revenues.
Cost of Sales: production overheads, raw materials, employees, product development, changes in stock levels, depreciation.
Gross Profit = Sales – Cost of Sales.
Operating Costs: costs of administration, distribution, marketing.
Operating Profit = Gross Profit – Operating Costs. (also referred to as profit before interest and tax, PBIT).
Profit Before Tax = Operating Profit – Profit
(+ Loss) on Sales of Fixed Assets – Net Interest Payable.
| Profit and Loss Account | |
| Sales | 3,500 |
| Cost of Sales | 2,450 |
| Gross Profit | 1,050 |
| Operating Expenses | |
| Salaries and Wages | 450 |
| Distribution | 200 |
| Rent | 45 |
| Depreciation | 50 |
| Total Operating Expenses | 745 |
| Operating Profit | 305 |
| Interest Payable | 15 |
| Profit Before Tax | 290 |
| Taxation | 60 |
| Profit After Tax | 230 |
| Dividends | 80 |
| Retained Profit | 150 |
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