PROFIT & LOSS ACCOUNT
Unit sales
Value sales (before discounting, net of discounts)
Variable costs – raw materials
Variable costs – inbound delivery, labour, packaging, fulfilment
Total variable costs
Fixed costs – salaries, overheads, premises costs (rent/mortgage, utilities)
Profit before non-cash costsNon-cash costs – depreciation
Profit after non-cash costs but before taxation
Taxation
Profit after tax
CASH FLOW STATTEMENT
Unit sales
Sales receipts
Variable costs paid
Fixed costs paid
Capital expenditure
Net cash flow in the period
Opening cash balance
Closing cash balance
BALANCE SHEET
Capital investment (cash injection = shareholder’s funds / share capital)
Capital expenditure (plant and machinery = fixed assets)
Opening cash (cash in less capex = cash at bank and in hand)
Debtors (monies due from customers for goods/services delivered but not yet paid for)
Creditors (monies due to suppliers for goods/services received but not yet paid for)
OTHER FINANCIAL TERMS
Emergency funding line
Useful economic life (of an asset)
Fixed cost or overhead allocation
Negative float = timing delay between payment of costs for [manufacture through to order fulfilment] and receipt of sales income [debtor payment due date] where costs have to be paid out before receipts are received in (common)
Positive float = where customer pays cash upfront now for a product/service to be delivered/supplied at a later date (uncommon)
Invoice financing or factoring = short term loan secured against due debtors (overcomes the problem of negative float by allowing cash to be received earlier than due date per standard invoice terms
Aged debtors = the total debtors at a given time (total sales income due but not yet received) and how this analyses out by month of receipt due date
Aged creditors = the total creditors at a given time (total invoiced costs due but not yet paid) and how this analyses out by month of payment due date
Marginal profit = profit per unit of production (Assuming that fixed costs remain level, marginal profit will increase for increasing sales, but decrease for decreasing sales. Hence why companies with significantly declining sales must also reduce fixed costs (salaries, overheads) if they are to remain profitable, unless they can significantly reduce the variable cost of production and/or fulfilment.)
Economies of scale = where marginal profits increase with increasing sales (with fixed costs remaining constant). Greatest economies of scale will be seen in companies/industries where fixed costs are high relative to variable costs (e.g. traditionally capital-intensive primary industries as mining or energy production, or modern-day low-capital industries such as internet-based retailers).
FINANCIAL ANALYSIS: Profit vs. Cash
Profitability analysis (idealised record of sales and costs)
Cash flow analysis (timing of actual receipts and payments)