FINM6211 2A
Learning Unit 2: Interpreting financial results
The effect of statement of comprehensive income items on net profit:
The statement of profit or loss and other comprehensive income measures financial
performance over a specific period
o This is the result of deducting a series of expenses from a series of income
Income has a positive effect on net profit
Expenses will have a negative effect on net profit
It is the primary aim of any business to maximise its profits
o It will therefore attempt to increase income and reduce expenses as far as
possible
Sales
o Most NB source of income
o The higher the stakes figure the better – but not just a case of selling more
products
o To sell more products, there needs to be an increase in demand
o Can do this by:
Ensuring that you have the best prod possible
Ensuring that your prod keep up w. the trends and fashions that
prevail in the market
Trying to set new trends and fashions w. new prod
Advertising your prod to the right target market
Offering discounts to increase sales
Keeping sales returns to a minimum
Page 1 of 10
, Cost of sales
o COS = the net purchase cost of goods that have been sold during a particular
period
o Sales – cos = gross profit
o To maximise GP one can
Increase sales revenue
Decrease cos
o To reduce cos one needs to reduce the production or purchase cost and
related costs of the prod being sold by…
Negotiating discounts or better terms w. suppliers
Ensuring fewer inv losses through damage or theft – shrinkage
Reducing the transport and storage costs of goods being delivered to
the business before sale
Buying prod or raw materials from diff suppliers or buying in bulk to
get a better purchasing price
Gross profit
o GP is the diff btw net sale and cos
o Net sales = sales revenue excl. VAT, less sales returns
o ‘gross’ means before deductions and ‘net’ means after deductions
o Gross profit = profit from sales before deducting the overheads, interest and
tax expenses
o Net profit = profit after accounting for all additional expenses
Operating expenses
o Expenses = costs incurred by the business that are not expected to be
recouped
o Usually consist of 2 components:
Marketing and selling expenses
General and administrative expenses
o Operating exp often referred to as overheads
Some exp are not classified as operating exp
Cos, sales returns, interest charges, taxation
Page 2 of 10
Learning Unit 2: Interpreting financial results
The effect of statement of comprehensive income items on net profit:
The statement of profit or loss and other comprehensive income measures financial
performance over a specific period
o This is the result of deducting a series of expenses from a series of income
Income has a positive effect on net profit
Expenses will have a negative effect on net profit
It is the primary aim of any business to maximise its profits
o It will therefore attempt to increase income and reduce expenses as far as
possible
Sales
o Most NB source of income
o The higher the stakes figure the better – but not just a case of selling more
products
o To sell more products, there needs to be an increase in demand
o Can do this by:
Ensuring that you have the best prod possible
Ensuring that your prod keep up w. the trends and fashions that
prevail in the market
Trying to set new trends and fashions w. new prod
Advertising your prod to the right target market
Offering discounts to increase sales
Keeping sales returns to a minimum
Page 1 of 10
, Cost of sales
o COS = the net purchase cost of goods that have been sold during a particular
period
o Sales – cos = gross profit
o To maximise GP one can
Increase sales revenue
Decrease cos
o To reduce cos one needs to reduce the production or purchase cost and
related costs of the prod being sold by…
Negotiating discounts or better terms w. suppliers
Ensuring fewer inv losses through damage or theft – shrinkage
Reducing the transport and storage costs of goods being delivered to
the business before sale
Buying prod or raw materials from diff suppliers or buying in bulk to
get a better purchasing price
Gross profit
o GP is the diff btw net sale and cos
o Net sales = sales revenue excl. VAT, less sales returns
o ‘gross’ means before deductions and ‘net’ means after deductions
o Gross profit = profit from sales before deducting the overheads, interest and
tax expenses
o Net profit = profit after accounting for all additional expenses
Operating expenses
o Expenses = costs incurred by the business that are not expected to be
recouped
o Usually consist of 2 components:
Marketing and selling expenses
General and administrative expenses
o Operating exp often referred to as overheads
Some exp are not classified as operating exp
Cos, sales returns, interest charges, taxation
Page 2 of 10
