In 2006 Alumwell Motors turnover was 700 and 250 gross profit in percentages this will be;
250
700 x 100 = 36
In 2007 Alumwell Motors turnover was 800 and 200 gross profit. The gross profit in percentage is:
200
800 x 100 = 25
This shows that Alumwell Motors were in more control of their costs in 2006 than in 2007. The business was making more profit in 2006 and a loss in 2007. This shows that Alumwell Motors need to have more control of their costs in 2007 if they want to make more profit than 2006. Alumwell Motor’s should continuously monitor how much money is going out the business and try to lower that as much as possible this can be done by negotiating prices with suppliers, though credit, or getting quality products for lower price.
Net profit
The gross profit less the other costs of the business that are needed to run it, rent of staff wages.
is calculated by subtracting a company's total from , thus showing what the has earned (or lost) in a given of time (usually one year). Also called or .
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Own words description of net profit
Net profit is the profit after all expenses have been taken out and tax has been taken out. Whatever the business is left over with is the profit of the year.
Expenses – with brief descriptions of, for example, wages, directors’ salaries, light and heat, rent and rates and advertising
Expenses are the payments like wages, when a business will need to pay to the workers who work for the business. There are other expenses like light and heating bills which come under expenses and if the business doesn’t pay these then they won’t have heat or light so the business wont able to run so the business will make a loss. Alumwell Motors will have other expenses like advertising there business so they get more customer and the people around that areas will know there is a motors business which they could go to.
Brief descriptions of each item on the balance sheets. As a guide this should include:
Fixed assets
Any of the equipment Alumwell Motor’s has bought or has leased for long-term use then this is called fixed assets. This includes equipment like furniture, computer equipment, cars or vans, machinery and premises. This is fixed cost because Alumwell Motors pay these once a month and every month until they are paid up to the supplier.
The capital items cannot be deducted from Alumwell Motors, taxable profits in the same way that expenses can. But Alumwell Motor’s still need to keep accurate records because they can spread the costs over several accounting years in their profit and loss account. They might also be able to claim allowances against their net profit for a percentage of the cost of the item.
Depending on the size of Alumwell Motor’s, Alumwell Motor’s can record the cost of equipment they buy in a separate register of equipment, the 'fixed asset register', or they can include it in there general expenditure records.
If the item Alumwell Motor’s buy is used partly for the business and partly for personal use, they must only record the proportionate cost. For example, if the business buys a PC for £500 and they use it only half of the time for business, they should record the cost as £250 and make a note on the supplier's invoice when you file it.
Current assets – with brief descriptions of stock, debtors, bank balance
Alumwell Motor’s will have a balance sheet item which would equals the sum of and , , , , , and that could be converted to less than one year. The business will often be interested in how much that has in current , since these assets can be easily in debt in case the company goes . In , current assets are important to most companies as a of for day-to-day .
Long-term liabilities
Long term liabilities are those that are due to be paid in more than a year. Those due in less than a year or on demand are .
The most important type of long term liability would be for Alumwell Motor’s is debt. are not debt, but given that they are debt like. This is often something investors should adjust for.
Similarly, some short term debt can keep being renewed, so it in fact provides long term funding. This sometimes happens with overdrafts: they are repayable on demand and therefore short term debt, but a company may maintain an overdraft for many years.
Conversely that originally had a long term that are now close to expiry are short term debt, and shown as such in the accounts.
Long term liabilities are looked at by investors assessing a company's financial health using ratios such as . Because of high debt enhances the benefits of growth.
Like shareholders, the holders of long term debt are banks and bondholders are suppliers of funds to a company. They rank higher than shareholders in getting their money back if a company fails and therefore their money is safer, but they do not gain if the company performs better than the minimum necessary to pay back its debt.
Share capital
Share capital is the amount of money contributed to Alumwell Motor’s by its owners. All the share capital is divided into the business so the same amount goes to each part of the department.
Reserves (retained profits)
The business will work out all the expense they need to pay, they will pay all of them and they will keep the profit which is made. Alumwell Motor’s will buy new equipment from the profit they make or the business will expand their business because they had a good customer service year and the business got well know from their work.
The purpose of this trading sheet is that Alumwell Motor’s can see how much profit they are making and how much loss. The use of this sheet is that they can see the amount of money which is out of the business like: wages, rent and rates, light and heat, advertising, insurances, director’s salaries, sundry expenses. If the business doesn’t have a sheet like this then they won’t know how much profit or loss they are making. Profit and loss account compiled at the end of an accounting period to show gross and net profit or loss.
How used as a measure of trading performance
Alumwell Motor’s will use the profit and loss account to see how well the business is doing; the profit and loss shows if Alumwell Motor’s are making a profit which shows them that they are doing well if Alumwell Motor’s are not doing well then the profit and loss account will show them they are making a loss. If Alumwell Motor’s are making a loss they can see on the profit and loss account how much they are spending. Alumwell Motor’s can choose whether it is possible for them to lower the costs on certain thing so they can make higher profit. If Alumwell Motor’s reduces the costs this means that they will be saving more money and it will help them to make a profit. They will be able to see the difference between many coming in and out. They can review this and make relevant changes in the future to lower outgoing and possibly increase profit. They can see both 2006- 2007 and use the information to make 2008 better.
How used to establish profit figures
Alumwell Motor’s use the profit and loss account to establish profit figure by working out the figures that are involved in the profit and loss account. The things which are including in the figure sales cost of sales, gross profit, expenses and net profit. To work out the gross profit Alumwell Motor’s have to take away the cost of sales this will then give the gross profit. From that Alumwell Motor’s have to add the expenses together and take them away from the gross profit this will give them the net profit. The figure Alumwell Motor’s has got will tell them how good Alumwell Motor’s has done in 2007 financial year and will be a target for them to achieve or better in the next financial year.
Business net worth
The purpose of the balance sheet is that Alumwell Motor’s ltd can see how much money is going out of the business, Alumwell Motor’s ltd can see how much was their fixed costs in 2006 and 2007, from this the business can see how much money they have saved. Net worth also called owner's equity, net worth is the claim of the owner(s) on the assets of the business. In a proprietorship or partnership, equity is each owner's original investment plus any earnings after withdrawals.
Describe Business valuation
The purpose of the balance sheet is that Cheang Motors can see what are the fixed assets, current assets, stock, debtors, bank balance, current liabilities, creditors, bank overdraft, net current assets, less long-term liability- bank loan, financed by, share capital retained profits, all these costs are not this sheet because they see how much money is being spend on all them in 2006 and 2007. Through this they will be able to see how much the company is valued at. The balance sheet is a record of a company's assets and liabilities -- in short, what it's already got or expects to get soon, and what it owes to others.
Shareholder value ultimately comes from liquid assets, assets that can easily be converted into cash. The amount of liquid assets a company can amass ultimately determines its value. A business will be able to use this information and use it for the next year and try and better it. By looking at the above Balance sheet, you will get an idea of what the business is valued at. It shows that the Fixed assets have gone up from 2006 (£110,000) and 2007 (£115,000). The liabilities have also seen an increase in the two years. This obviously shows money coming in and out and what the business owns and what it owes. This then shows the value of the business.