Business – 10.1 Financial statements – Statement of profit or loss | e-Consult
10.1 Financial statements – Statement of profit or loss (1 questions)
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First calculate profit before tax:
- Gross profit = Revenue – Cost of Goods Sold = £120,000 – £70,000 = £50,000
- Operating profit = Gross profit – Operating Expenses = £50,000 – £30,000 = £20,000
- Profit before tax = Operating profit – Interest Expense = £20,000 – £5,000 = £15,000
Tax (20% of £15,000) = £3,000.
Net profit = Profit before tax – Tax = £15,000 – £3,000 = £12,000.
Comment: A net profit of £12,000 on £120,000 revenue indicates a 10% net profit margin, suggesting the business is generating a modest return after covering all costs. Management may look to improve margins by reducing operating expenses or increasing sales.