P5 Interpret the contents of a trading and profit and loss account and balance sheet for a
selected company
Financial statements are what businesses use to measure how well they are managing their financial
resources. PLCs display their financial statements to potential investors for them to have an overview of
how well the business is managing their financial resources and if it’s safe to buy shares from them,
private companies usually don’t display their financial statements but instead use them for their own
assessments and most importantly to see the well doing of their business. There are two main financial
statements
a) Income statement (profit and loss account): an income statements shows how much a
business has gained during the span of a year, from this businesses are able to analyze what
went wrong, what could be done better and what to improve to gain more profit and to
minimize loss that may have occurred. Income statements are therefore used for planning for
the upcoming years to improve the next year’s annual report.
Ilemela Pharmaceuticals has provided two income statements, one for 2018 and another one for 2019,
from this I will interpret the company’s profit between the two years and therefore conclude on the well
doing of Ilemela Pharmaceuticals between the two years. The income statements have:
i) Sales Revenue- is the income obtained through normal business operations, including sales
return which is when customers return products they are unsatisfied with to sellers usually
due to damage. Sales revenue are important because they are a key factor in increasing the
net profit, the more the sales revenue the more likely the profit is going to be large. In the
year 2019 more profit was generated than the previous year 2018. The profit generated in
2019 was 35,000,000$ compared to 2018 with a net profit of 25,784,000$ that means that
Ilemela Pharmaceuticals had a solid financial plan for 2019 that helped increase their profit
by 9,216,000$, (approximately 36% increase).
ii) Cost of sales – total of costs used in creating products that have been sold. I would say that
a biggest contribution to this increase is because the company invested more on their
production which led to a greater cost of sale due to this, their opening inventories in 2019
is 23,600,000$ more than that of 2018, this means that the business invested on more parts
and raw materials that were used in production for selling goods. This cost of sales had the
most increase out of all the key elements of the income statement which led to a steady
increase in the Sales revenue, gross profit, expenses and net profit.
iii) Net profit – the value remaining after expenses are subtracted from Sales Revenue. This is
important in figuring out if a company has experienced a gain or a loss. Even though the
revenue increased by approximately 67% from 2018 to 2019 the sales return also increased
very rapidly from 1,800,000$ to 10,000,000$ this is a loss value that reduces the net revenue
which therefore affects the net profit gained. If the sales return keeps rapidly increasing like
this, by the year 2020 the business will experience a greater loss that’ll affect the profit all
together and lead to a smaller profit in 2020 than 2019. Instead of investing on more
production the business should concentrate on efficient production, quality production will
selected company
Financial statements are what businesses use to measure how well they are managing their financial
resources. PLCs display their financial statements to potential investors for them to have an overview of
how well the business is managing their financial resources and if it’s safe to buy shares from them,
private companies usually don’t display their financial statements but instead use them for their own
assessments and most importantly to see the well doing of their business. There are two main financial
statements
a) Income statement (profit and loss account): an income statements shows how much a
business has gained during the span of a year, from this businesses are able to analyze what
went wrong, what could be done better and what to improve to gain more profit and to
minimize loss that may have occurred. Income statements are therefore used for planning for
the upcoming years to improve the next year’s annual report.
Ilemela Pharmaceuticals has provided two income statements, one for 2018 and another one for 2019,
from this I will interpret the company’s profit between the two years and therefore conclude on the well
doing of Ilemela Pharmaceuticals between the two years. The income statements have:
i) Sales Revenue- is the income obtained through normal business operations, including sales
return which is when customers return products they are unsatisfied with to sellers usually
due to damage. Sales revenue are important because they are a key factor in increasing the
net profit, the more the sales revenue the more likely the profit is going to be large. In the
year 2019 more profit was generated than the previous year 2018. The profit generated in
2019 was 35,000,000$ compared to 2018 with a net profit of 25,784,000$ that means that
Ilemela Pharmaceuticals had a solid financial plan for 2019 that helped increase their profit
by 9,216,000$, (approximately 36% increase).
ii) Cost of sales – total of costs used in creating products that have been sold. I would say that
a biggest contribution to this increase is because the company invested more on their
production which led to a greater cost of sale due to this, their opening inventories in 2019
is 23,600,000$ more than that of 2018, this means that the business invested on more parts
and raw materials that were used in production for selling goods. This cost of sales had the
most increase out of all the key elements of the income statement which led to a steady
increase in the Sales revenue, gross profit, expenses and net profit.
iii) Net profit – the value remaining after expenses are subtracted from Sales Revenue. This is
important in figuring out if a company has experienced a gain or a loss. Even though the
revenue increased by approximately 67% from 2018 to 2019 the sales return also increased
very rapidly from 1,800,000$ to 10,000,000$ this is a loss value that reduces the net revenue
which therefore affects the net profit gained. If the sales return keeps rapidly increasing like
this, by the year 2020 the business will experience a greater loss that’ll affect the profit all
together and lead to a smaller profit in 2020 than 2019. Instead of investing on more
production the business should concentrate on efficient production, quality production will
