First 252 words of the document:
PROFIT AND LOSS ACCOUNTS
What Do P&L Accounts Show?
Revenues and cost of a business over a given period of time, usually a year
The profit a business has made in that time period and what the company does with the
What Do They Include?
Sales Turnover i.e. revenue
Cost Of Sales- direct costs e.g. Raw materials
Gross Profit= sales turnover - cost of sales
Overheads- indirect costs e.g. Heating & lighting and Rent
Net Profit= gross profit overheads
Profit And Loss Ratios:
Gross Profit x 100 = % Gross Profit Margin
Net Profit x 100 = Net(Operating) Profit Margin
Analysis of ratios:
The higher the ratios are the better the business's profitability position
The comparison of data enables you to work out a trend over a period of time.
How to improve the ratios:
Decrease cost of sales e.g. by buying raw materials in bulk
Increase revenue e.g. by marketing the product more
Who Will Be Interested In It?
Used by a number of STAKEHOLDERS to make judgements about a company and its performance:
By BANKS to decide how risky the business is
By SHAREHOLDERS to see the business' performance and profitability
By SUPPLIERS to see whether the business is able to pay them for supplying
By EMPLOYEES to see their job security