Chioma Francisca Nwabuaju

Calculating Profit and loss (Income statement) Income statement for Maria Delicatessen’s first year in business Items Amount Revenues Sales revenues £243,000 Expenses Annual Cost of products purchased £120,000 Annual wages £48,000 COGS (direct expenses) £168,000 Gross profit £75,000 Gross profit% £30% Operating expenses Promotional activities £12,000 Annual general expenses £15,000 depreciation £ 500 Earnings before interest and tax (EBIT) £47,500 Assumed non-operating expenses Interest paid £550 Income tax £320 Net income £47,500-870=46,630 Net profit £46,630 Analysis: Maria Delicatessen’s analysis above suggest that the first year of business after deducting expenses from revenue gives £75,000. Since the cost of products purchased was not written down by Maria on her usual purchase but assumed 30% gross profit. It’s presumed that she totally spent £120,000 annual on goods and £48,000 paying her workers. So the cost of goods sold (COGS) comes with the addition products and wages (£120,000+£48,000=£168,000) Using the equation; Revenue – expenses= Net income (£243,000-£168,000= £75,000) In order to confirm the actual product purchase and gross profit; the gross% margin formula were applied to prove this analysis; as shown below; Therefore: Gross profit % = Gross profit/sales* 100 £75,000/£243,000=0.3086*100=30% gross profit percentage margin. The record shows that the operational expenses featured the promotional activities and general annual expenses with an assumed depreciation of 500. This totals 27,500. Other possible calculation such as earnings before interest and tax will determine accurately the net-profit of the business. The calculation below shows the EBIT of the business. Which is; Gross profit less (operating expenses + depreciation) Therefore: £12,000+£15,000 +£500 =£27,500 If the total amount gotten from the operational expense is subtracted from the gross profit, we will get the net income. (£75,000-£27,500=£47,500) The net profit were actualizes as Net income: EBIT less (interest paid + tax) 550+320=870, whereby net profit is £47,500-£870=£46,630. Obviously, Maria has realized £46,630 in a year as the net profit from the business. Considering the revenue generated in just one year (£243,000), Maria has tried to keep business steady but shows a relative business loss since £46,630 is less amount to make in a year. This negative amount probably happened due to high product purchased for the business (direct cost) or the huge cost of services (wages) paid to her workers and less revenue generated. She needs product development and acquisition strategy to reduce cost and implement a better human resource strategy to pay less on wages. However, future increase in revenues may trigger reduction in direct cost; if the cost of product purchased and wages are reduce. Hence, adequate marketing strategy will guarantee more revenue and drop COGS. To the stakeholders, the balance attain as a profit in this records represent net increase in asset. Profit in some case represent increase in asset rather than cash. Maria Delicatessen stand a chance to grow and expand. It’s a good business venture for enthusiastic investors seeking for a way to maximize profit. Future cash flow prediction are possible, perhaps it’s a new business setup and the first year might be presumed too early to claim risk and immense losses. Maria Delicatessen as a new business with proper marketing will gain more consumers, leading to a better outcome years to come.