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INTERPRETING FINANCIAL RESULTS

This guide provides a comprehensive overview of interpreting financial results to enhance business decision-making. Learn the key components of financial statements, including the differences between gross profit, net profit, and cash on hand. Understand how to analyze changes in expenses and identify strategies for reducing shrinkage. Gain insights into profitability, liquidity, and investment ratios, along with ways to maximize profits by effectively managing sales and cost of sales. Equip yourself with the tools to assess business efficiency and profitability.

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INTERPRETING FINANCIAL RESULTS

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  1. INTERPRETING FINANCIAL RESULTS

  2. INTERPRETING FINANCIAL RESULTS Learning Objectives • Outline the main elements and components of a set of financial statements • Explain the difference between gross profit, net profit and cash on hand • Explain reasons for increases/decreases in expenses • Identify ways to reduce shrinkage

  3. INTERPRETING FINANCIAL RESULTS Learning Objectives • Understand the difference between technical and fundamental analysis • Apply profitability, liquidity and investment ratios • Assess the efficiency and profitability of a business using these tools

  4. Statement of Comprehensive Income • The following comprehensive income items have a direct or indirect effect on profitability: • Sales • Cost of sales • Gross profit • Expenses • Interest • Income tax • The primary aim of any business is to maximise profits

  5. Statement of Comprehensive Income Sales – selling price

  6. Effect of the reduced Selling Price

  7. Effect of the reduced Selling Price

  8. Effect of the reduced Selling Price Conclusion: The clearance sale was not profitable for any of the businesses. Both Business B and C made a loss during the clearance sale week, while Business A made a lower than usual net profit.

  9. Maximising Profits How do you increase Sales? • Increasing demand for the product • Ensure you have the best product • Ensure your products keep up with the trends that prevail in the market • Try to set new trends and fashions with new products • Advertising your products • Offer discounts to increase sales • Maintain sales returns to a minimum

  10. Maximising Profits If a business chooses to offer discounts to increase demand: UNIT SALES LOSS IN PROFITS

  11. Maximising Profits Cost of sales • The net purchase cost of goods that have been sold during a period Sales – Cost of sales = Gross Profit PROFITS COST OF SALES SALES

  12. Maximising Profits Reduce COST OF SALES • Reduce Production costs • Reduce Purchase costs • Negotiate discounts / improved payment terms • Reduce stock loss from damage or theft • Decrease transport and storage costs • Buy in bulk to get a better purchase price • Buy from different suppliers

  13. Maximising Profits Reduce COST OF SALES • Negotiate with another Supplier

  14. Maximising Profits Reduce COST OF SALES • Negotiate with another Supplier

  15. Statement of Comprehensive Income Question 2.2

  16. Effect of the reduced Cost of Sales

  17. Effect of the reduced Cost of Sales

  18. Effect of the reduced Cost of Sales

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