Understanding Business Finance: Revenue, Cost of Sales, Gross Profit, Operating Expenses, and Net Profit

BUSINESS FINANCE

Table of Contents
MAIN BODY..................................................................................................................................3
Part 1................................................................................................................................................3
Part 2................................................................................................................................................5
Part3.................................................................................................................................................7
References......................................................................................................................................10
Appendices....................................................................................................................................11

MAIN BODY
Part 1
1.1
Revenue: Revenue is the compensation generated by normal business activities and includes
limits and allowances for reported inventory. This is the main line or figure of total salary from
which expenses are deducted to determine the total compensation. Revenue is money that an
organization brings into its business. Tenders are called income, as in the bargaining cost ratio,
an alternative to the cost-to-profit ratio that uses revenue in the nominator.
There are different ways to measure income, depending on the method of accounting used.
Collective accounting includes transactions made using a loan as income for products or
administrations provided to the customer. It is important to examine the structure of income to
examine the productivity of an organization raising the money due. The trend line of Revenue is
diminishing; as its revenue has been decreased by 35% since 2018. The reason might be low in
consumer demand either due to change in customer taste or poor marketing strategies. Price is
not considered as the reason because its Gross Profit has also declined despite of decrease in
Cost of sales.
Cost of Sales: Companies cost of sales also declined by 11% since 2018; but this decrease is
lesser than Revenue’s fall. This indicates failure of company in maintaining its costs with the
decrease in Revenue. Here, it is recommended that, company should focus on cost controlling
measures.
Gross Profit: As discussed above; gross profit is declined by 51%. The reason is increasing of
Cost of sales with the decrease in Revenue. Cost of sales has been increase by 24% due to which
profit margin has been declined by 15% since 2018. To increase gross profit, firm has three
options; increasing revenue, decreasing cost of sales and increasing the product price.
Operating expenses: It is increased by 23%; due to investment in marketing campaign or
recruiting more staff for marketing department. It is bad indicator for the company and it should
be controlled by removing unnecessary expenses on marketing campaign and paying salary to
extra staff.

Net Profit before tax: Net Profit before tax is called the main line because it first appears in an
organization's payroll definition. Full compensation, also known as realism, includes short costs.
There is an advantage when the income exceeds the expenses. To maximize profits, and
therefore the income of each sector for investors, an organization increases revenue and reduces
costs. Financial experts often consider an organization's total income and compensation
independently to determine corporate welfare. Total benefits can improve as long as revenues
remain constant thanks to cost cuts. Such a situation does not seem good for the development of
an organization. When public bodies report quarterly earnings, income and earnings per share are
the two most important figures considered ("profit" equals total). Ensuring added value in
inventory largely depends on whether an organization is outstripping or losing the income and
profit of each stock expert.
Firm is facing loss of £394,000; reason is clear increasing of operating expenses by 23%. The
only way to gain profit in next year is either increasing the operating revenue or decreasing the
operating expenses.
Net Profit after tax: The overall finance cost of the business, has been increased by 54%; due to
which Net loss increased to -£500,000 for the year and trend line fallen by 234% which is huge
failure for the company.
Conclusion
In conclusion of above part this can be stated that company’s performance is poor in year 2018
as compared to year 2019. This is so because of more number of expenses and less amount of
revenue in year 2019. Company needs to enhance their revenue sources and try to minimize their
expenses as much as possible.
1.2
Inventories: Stocks refer to a corporation's ending inventory of products at the close of a given
era. The incorporation of raw resources, final goods and work - in - progress. The organization is
required to estimate its investments using the rules of the accounting directive. Stocks are the
smart but inert assets found by the organization towards the end of the accounting period. It is a
key asset of an organization in its resources report. Inventory valuation is therefore an important
feature of an organization’s accounting. It is the part of current assets and considered as
convertible within a year. The trend analysis of inventories shows that it has been increased by