Profit and Loss Accounts - Introduction Land, labour and Capital = Service or Goods Sold in the hope of making a profit We use profit and loss accounts to see whether a business has had success in meeting its aim Over a period of time – usually a year Compiled at the end of an account period Help shareholders and other users see how company is performing

Gross Profit Gross Profit – calculated in the first part of the P&L – trading account Gross Profit = sales – cost of sales OS + Purchases - CS Quantity sold x price of product

Net Profit Gross – overhead costs Indirect cost of production bills. Transportation, payments, wages etc Net profit = gross profit – overheads This makes up the second part of the P&L account

Profitability Ratios Gross Profit Margin Manager want to know how much profit they are making as a proportion of sales revenue Gross Profit Margin = Gross Profit Sales Higher the percentage the greater portion of sales is going to profit as opposed to cos x100

Profitability Ratios Net Profit Margin Net Profit Margin = Net Profit/ sales x100 Higher percentage more profitable the business This includes more costs You can use the profitability ratios to compare year on year A quick tool to judge the position of the company