Financial Statements
Income statement, balance sheet analysis
Analysing Financial Statements
Financial statements tell the story of a business's performance. The income statement shows whether it made profit or loss. The balance sheet shows its financial position (what it owns and owes). Analysis involves calculating ratios and comparing figures to make informed business decisions.
Example
Key Calculations
From the Income Statement:
Gross profit = Sales - Cost of Sales
Net profit = Gross profit - Operating expenses
Profit % = (Net profit ÷ Sales) × 100
Example: Sales R200 000, Cost of sales R120 000, Expenses R50 000
Gross profit: R80 000
Net profit: R30 000
Profit %: R30 000 ÷ R200 000 × 100 = 15%
Note
Remember
Financial statements are useful for comparison — compare this year to last year, or your business to competitors. A profit percentage tells you how much of each rand of sales becomes profit. Higher is better. If costs are growing faster than sales, there's a problem.
Key Vocabulary
Gross profitSales minus the direct cost of goods sold
Net profitProfit after ALL expenses are subtracted
Profit marginNet profit as a percentage of sales
Financial analysisExamining financial data to make business decisions
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Gross profit
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