Profit and loss account (PowerPoint download)

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					Unit 3 – Financial Strategies
Key financial statements
           Learning Objectives
• Learners will be able to:
  • Outline the key elements within published
    financial statements
  • Analyse the different stakeholders interested
    in key financial statements
  • Evaluate the usefulness of key financial
The accounts section of an annual report and
      Types of financial objectives
   – cash flow targets
   – cost minimisation
   – ROCE targets
   – shareholders’ returns
• In small groups discuss these types of financial
  objectives and provide two examples for each of the
  four types of financial objective.
   Purposes of financial statements
• To help managers to review progress.
• To allow people with an interest in the business (stakeholders) to
  assess whether the business is performing well.
• To assess a firm’s working capital.
• To enable people to see if profit is of high quality.
• To enable people to see if profit is being utilised in a sensible
• To compare results with competitors.
• To see if the firm is improving its performance over time.
• To assess the effectiveness of different divisions or branches.
Structure of the income statement (Next PLC)
Years ending                     30/01/10 (£m)   30/01/09 (£m)
Revenue                              3,407           3,272
Cost of Sales                       (2,410)         (2,363)
Gross Profit                         997             909
Expenses                             (467)           (431)
Plus (minus) Exceptional Items         -               -
Operating Profit                     530             478
Finance Income                        1               1
Finance Costs                        (25)            (51)
Profit before tax                    505             429
Taxation                             (141)           (127)
Profit for year                      364             302
Earnings per share                   189p            156p
 Tesco Profit and Loss (28/2/09) – Key questions

• Which segment of Tesco’s operations contributes the
  highest level of revenue?
• Which segment made an operating loss?
• How much did Tesco invest in capital expenditure in
  Asia throughout the year?
• How much did Tesco receive in bank interest and
  similar during the year?
• What was the increase in dividend per share from
  2008 to 2009?
                   Profit quality
  Measure of whether profit is sustainable in the long run

•High quality profit – profit that will continue
•Low quality profit – arises from extraordinary or
exceptional circumstances
•Extraordinary items
   •A non-recurring event that materially affected a
   company's finances in a reporting period. Must be
   explained in the annual report or quarterly report.
•Exceptional items
   •Costs which alter a company's earnings during a
   given reporting period and which are a part of the
   company's normal activities but are unusually large.

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