Finance And Accounts

Slide 4: http://www.bized.co.uk Costs • Fixed (Indirect/Overheads) – are not influenced by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs • Variable (Direct) – vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs • Semi-fixed – where costs not directly attributable to either of the above, for example, some types of energy and labour costs Copyright 2006 – Biz/ed

Slide 5: http://www.bized.co.uk Costs • Total Costs (TC) = Fixed Costs (FC)+ Variable Costs (VC) • Average Costs = TC/Output (Q) – AC (unit costs) show the amount it costs to produce one unit of output on average • Marginal Costs (MC) – the cost of producing one extra or one fewer units of production – MC = TCn – TCn-1 Copyright 2006 – Biz/ed

Slide 6: http://www.bized.co.uk Revenue • Total Revenue – also known as turnover, sales revenue or ‘sales’ = Price x Quantity Sold • TR = P x Q • Price – may be a variety of different prices for different products in the portfolio • Quantity – could be global sales Copyright 2006 – Biz/ed

Slide 7: http://www.bized.co.uk Profit • Profit (Π) = TR – TC • Normal Profit – the minimum amount required to keep a business in a particular line of production • Abnormal/Supernormal Profit – the amount over and above the amount needed to keep a business in its current line of production Copyright 2006 – Biz/ed

Slide 9: http://www.bized.co.uk Break Even • Occurs where Total Costs = Total Revenue – Start-up costs – fixed costs – Running costs – variable costs – Revenue stream depends on price charged – ‘Low’ price – need to sell more to break-even – ‘High’ price – lower level of sales required before breaking even Fixed Costs • Break-Even Point = --------------- Contribution Copyright 2006 – Biz/ed

Slide 11: http://www.bized.co.uk Purpose of Accounts • Provide information for stakeholders – customers, shareholders, suppliers, etc. • Provides the opportunity for the business to monitor its own activities • Provides transparency to enable the firm to attract investment • Reduces the chance for fraud – not 100% successful!! Copyright 2006 – Biz/ed

Slide 13: http://www.bized.co.uk Profit and Loss Account • Shows the flow of sales and costs over a period • Shows the level of profit or loss made • Shows what has been done with the profit or loss Copyright 2006 – Biz/ed

Slide 14: http://www.bized.co.uk Profit and Loss Account Consolidated Profit & Loss Account for the year ended 2003 2002 2001 Dividend Loss Final section –or Operating Turnover – Profit of Sales Cost andtax Subtract other Subtract Operating Gross Profit Weeks 52 52 52 Currency £ million £ million £ million Subtract the share of the calledProfit = Turnover 7688.0 8340.0 9278.0 Accountget – costs variable the revenue– Net to for – the and interest Expenses = turnover due ‘appropriation profit returned Cost of sales -7263.0 -8291.0 -8757.0 earned Airways profit over costs, sales expenses costs Britishprofit – Gross how the payments/recei the of on costfixed– shows account’ to shareholders Gross Profit 425.0 49.0 521.0 Operating Expenses -130.0 -137.0 -77.0 incurred year it to get much get plc tothecost operating costs pts where ordinary profit/loss to going profit before the firm is Operating Profit 295.0 -88.0 444.0 Source: http://www.bized.ac.uk/cgi- Other costs/income 95.0 166.0 -68.0 profit on Retained activities bin/ratios/ratiodata.pl Profit before interest and taxation 390.0 78.0 376.0 produce what tax ordinary after – the Profit tax Net interest receivable (payable) Profit on ordinary activities before taxation -255.0 135.0 -278.0 -200.0 -226.0 150.0 it has sold – activities amount kept Tax on profit on ordinary activities -50.0 -71.0 -69.0 not to befuture before tax back for confused with Profit on ordinary activities after taxation 85.0 -129.0 81.0 Equity minority interests -13.0 -13.0 -14.0 investment, Profit for the financial period 72.0 -142.0 67.0 sales revenue! etc. Dividends 0.0 -193.0 Retained profit 72.0 -142.0 -126.0 Copyright 2006 – Biz/ed

Slide 16: http://www.bized.co.uk Balance Sheet • A snapshot of the firm’s position at a point in time • Shows what a company owns (assets) and what it owes (liabilities) • Balance Sheet shows what assets a company has (use of funds) and where the money came from to acquire those assets (source of funds) Copyright 2006 – Biz/ed

Slide 17: http://www.bized.co.uk Balance Sheet – Part 1 Consolidated Balance Sheet for the year ended 2003 2002 2001 Weeks 52 52 52 Fixed Assets: Fixedassets can CurrentAssets – Currency £ million £ million £ million be tangible used assets that are – assets not used Fixed assets up during Intangible Assets 164.0 105.0 60.0 up in production i.e. physical production and which or or lasting longer itemsare likely to Tangible Assets 9487.0 10509.0 10662.0 yield one year intangible – – than cash in the i.e. Investments 524.0 489.0 426.0 Total Fixed Assets 10175.0 11103.0 11148.0 Current assets brand name, equipment,– for coming year Stock 87.0 109.0 170.0 example, stock will goodwill. buildings, be sold and debtors Debtors due within one year 986.0 1231.0 1444.0 machinery, etc. owing the business Short-term investments 1430.0 1155.0 865.0 Cash at bank and in hand 222.0 64.0 71.0 money will pay up! Total Current Assets 2725.0 2559.0 2550.0 Copyright 2006 – Biz/ed

Slide 18: http://www.bized.co.uk Balance Sheet – Part 2 Creditors: Amounts falling due within one year -2904.0 -3201.0 -3308.0 Subtracted The funds to Net Current Assets (liabilities) -179.0 -642.0 -758.0 It can come those And total The to these us acquirethe from share This leaves Total assets less current liabilities 9996.0 10461.0 10390.0 fromare longer capital are the who ‘Net have assets must Creditors: Amounts falling due after more than one year -6553.0 -7097.0 -6901.0 assets with capital and term from must come creditors employed money the Provisions for liabilities and charges -1169.0 -1157.0 -1164.0 Assets’ from retained somewhere – the – loans, owes be the same as Net assets 2274.0 2207.0 2325.0 Capital and reserves company next section tells profit (profit mortgage on– thecreditors to sum of the Called-up share capital 271.0 271.0 271.0 us where it came Share premium 788.0 788.0 788.0 net loss for and assets – property etc suppliers from. account) term Other reserves 270.0 270.0 290.0 Profit and loss account 729.0 687.0 772.0 hence the example Equit shareholders' funds 2058.0 2016.0 2121.0 ‘balance’ sheet! Minority interests 216.0 191.0 204.0 Total capital employed 2274.0 2207.0 2325.0 Copyright 2006 – Biz/ed

Slide 19: http://www.bized.co.uk Balance Sheet • A guide to the structure of the assets of a company • A guide to the level of gearing – the ratio of loan to share capital • Gives a guide as to the degree of working capital – the amount the company has to be able to pay its everyday debts (current assets – current liabilities) • Shows the total value of a firm at that moment in time Copyright 2006 – Biz/ed

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