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  3. The University Of Manchester (UOM)
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  5. Bsc Management
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  7. Finance

Lecture notes

Financial Performance

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Tells us how to calculate different types of profit, the different ways to calculate depreciation and also ways to valuate inventories. Benefits of Income Statement are also discussed.

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  • November 16, 2015
  • 3
  • 2014/2015
  • Lecture notes
  • Unknown
  • Lecture 3

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Financial Performance

Revenue is simply the income/economic benefits arising from the ordinary
operations of a business. It is also called turnover/sales. It includes both
cash and credit sales.

Expenses are costs incurred in the process of generating revenue. They do
not always involve direct cash payments. They arise from the ordinary
operations of a business.

Profit = Revenue – Expenses

Gross Profit is the profit arising from the business, only from buying and
selling goods and not taking into account any other revenues/expenses
associated with the business is called gross profit. It can be found out by
Sales Revenue – Cost of Sales.

Operating Profit is the profit remaining after expenses incurred in
running an organization are deducted from the gross profit. It can be found
out by Gross Profit – Operating Expenses.

Profit for the period is found by adding non-operating income (interest
receivable, sale of non-current assets) and deducting non-operating
expenses (interest payable for financing business) gives us the profit for the
period/net profit. It is the residual amount added to the equity figure .

NOTE: We consider the Cost of Goods Sold and not cost of goods
bought during the accounting period. Thus we deduct the cost of unsold
stock (closing inventories) while calculating cost of sales ( Purchases +
Opening Industries – Closing Inventories).

Two Types of Expenditure –

1. Capital Expenditure – Provides benefit for more than one
period. Example: purchase of assets (non-current assets)
2. Revenue Expenditure – Provides benefit for only one year.
Example: Cost of Goods Sold, Running Costs

Note:

1. Paying for liabilities is not an expense.

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