Use A,B, C for feedback.Stand-up if your bday is in Jan to March – utilise for questioning why?
Practice handout – go through answers
2nd Practice handout – go through answers
Choose MA – Routine/ non-routine
Use MA for short/ long-term objectives.Students to complete ‘Income Statement Questions’ – Peer assess answers
Use questions to test other students in the group – lolly stick names.
3.3 using financial data to measure and assess performance (part 1) - moodle
Do Now - QuizWhat do youremember about thework we completedlast term?Complete the quiz!
Using financial data to measure and assess performance
Learning ObjectivesBy the end of this lesson you should be able to:1. Analyse how income statements are used to assess performance and potential.2. Understand the importance of profit utilisation and profit quality.
Sources of financial data Companies are required to produce an annual report – but what does it contain and why produce it?Income This measures the business performance over a given period of time,statement usually one year. It compares the income of the business against the cost of goods or services and expenses incurred in earning that revenue. It shows if a business has made a profit or loss.Balance This is a snapshot of the business assets (what it owns or is owed)sheet and its liabilities (what it owes) on a particular day - usually the last day of the financial year.Cash flow This shows how the business has generated and disposed of cash andstatement liquid funds during the period under review. [note: AQA BUSS3 does not require you to study cash flow statements]
Key users of financial data60 second challenge….. Examples include: Investors List the key users of accounts. Lenders Creditors Customers Employees Government Analysts Media But why would they want this information?
What is an Income Statement A historical record of the trading of a business over a specific period (normally one year) Shows the profit or loss made by thebusiness – which is the difference between the firm’s total income and its total costs
Revenue, Cost of Sales & Gross Profit Category Explanation Revenue Revenues (sales) during the period.Cost of sales Direct costs of generating revenues go into “cost of sales”: Cost of raw materials, components, goods bought for resale, direct labour costs. You did this inGross profit The difference between revenue and cost of sales. AS! Gross Profit = Revenue – Cost of sales. Gross Profit Margin (%) = Gross Profit/ Revenue x 100 • Useful measure showing how much profit is generated from every £1 of revenue before overheads and other expenses are taken into account.
Overheads and Operating ProfitCategory ExplanationDistribution & Operating costs and expenses that are not directly related toadministration producing the goods or services are recorded here:expenses Distribution costs (e.g. marketing, transport), administrative expenses and overheads.Operating profit A key measure of profit. Operating profit records how much profit has been made from the trading activities of the business.
Net profitFinance Interest paid on bank and other borrowings, less interestexpenses income received on cash balances. A useful figure for shareholders to assess how much profit is being used up by the funding structure of the business.Profit before tax Calculated as operating profit less finance expensesTax An estimate of the amount of corporation tax that is likely to be payable on the recorded profit before tax.Profit The amount of profit that is left after the tax has been accountedattributable to for. Shareholders then decide how much of this is paid out toshareholders them in dividends and how much is left in the business.
PracticeComplete the handoutand learn more about thethree parts of the IncomeStatement.You may need acalculator.
What is profit quality? Profit quality looks at whether the reported profit can be sustained. What are the benefits of considering profit in the short, medium and long term?
High v Low Quality ProfitHigh quality profit Low quality profitProfit which can be repeated Difficult to repeator sustained Includes one-off profits (e.g.Not reliant on one-off profits from the sale of surplus assets or businesses)Shareholders can have someconfidence in the profit trend Shareholders need to adjust reported profit to assess what the likely profit is for next year
What is profit utilisation? The way in which profit Consider: is being used, i.e. – put Long andshort-term back into the businessobjectives (retained profit) or distributed to shareholders.
Create a question!Create a question to test another student in thegroup.Don’t forget to note the answer!
Re-cap Learning ObjectivesYou should now be able to :1. Analyse how income statements are used to assess performance and potential.2. Understand the importance of profit utilisation and profit quality.