QFINANCE Calculation Toolkit

Bloomsbury Publishing

• Publisher: Bloomsbury Information
• Year: 2013
• ISBN:
  9781849300704
• Edition: 1
• Topic: Study Aids
• Subtopic: CPA (Certified Public Accountant) Study Guides

* 100 key calculations essential for everyday business management
* Essential for the monitoring of the financial health of a company
* Each calculation is accompanied by a worked example to illustrate uses and limits
* Written by professional mathematicians

Creating a Profit and Loss (P&L) Account

WHAT IT MEASURES

A company’s sales revenues and expenses over a period, providing a calculation of profits or losses during that time.

WHY IT IS IMPORTANT

Reading a P&L is the easiest way to tell if a business has made a profit or a loss during a given month or year. The most important figure it contains is net profit: what is left over after revenues are used to pay expenses and taxes.

Companies typically issue P&L reports monthly. It is customary for the reports to include year-to-date figures, as well as corresponding year-earlier figures to allow for comparisons and analysis.

HOW IT WORKS IN PRACTICE

A P&L adheres to a simple rule of thumb: “Revenue minus cost equals profit.”

There are two P&L formats, multiple-step and single-step. Both follow a standard set of rules known as “generally accepted accounting principles” (GAAP). These rules generally adhere to requirements established by governments to track receipts, expenses, and profits for tax purposes. They also allow the financial reports of two different companies to be compared. Note that in the United Kingdom and several other nations, sales, revenues, and receipts may all be designated as turnover.

The multiple-step format is much more common, because it includes a larger number of details and is thus more useful. It deducts costs from revenues in a series of steps, allowing for closer analysis. Revenues appear first, then expenses, each in as much detail as management desires. Sales may be broken down by product line or location, while expenses such as salaries may be broken down into base salaries and commissions.

Expenses are then subtracted from revenues to show profit (or loss). A basic multiple-step P&L is shown opposite.

Multiple-step pr...

Table of contents

• Cover
• Title Page
• Contents
• Introduction
• Accounts Payable Turnover Ratio
• Accounts Receivable Turnover
• Accrual Rate
• Acid-Test Ratio
• Activity-Based Costing
• Alpha and Beta Values of a Security
• Amortization
• Annual Percentage Rate
• Asset Turnover
• Asset Utilization
• Basis Point Value
• Binomial Distribution
• Bond Yield
• Book Value
• Borrowing Costs and Capitalization
• Break-Even Analysis
• Capital Asset Pricing Model
• Capital Expenditure
• Capitalization Ratios
• Central Limit Theorem
• Contribution Margin
• Conversion Price
• Conversion Ratio
• Convertible Preferred Stock
• Cost of Goods Sold
• Covariance
• Creating a Balance Sheet
• Creating a Cash Flow Statement
• Creating a Profit and Loss (P&L) Account
• Creditor and Debtor Days
• Current Price of a Bond
• Current Ratio
• Days Sales Outstanding
• Debt/Capital Ratio
• Debt/Equity Ratio
• Defining Assets
• Depreciation
• Discounted Cash Flow and an Operating Lease
• Dividend Yield
• Earnings at Risk
• Earnings per Share
• EBITDA
• Economic Value Added
• Efficiency and Operating Ratios
• Elasticity
• Enterprise Value
• Exchange Rate Risk
• Expected Rate of Return
• Fair Value Calculations
• Fixed-Deposit Compound Interest
• Forward Interest Rates
• Future Value
• Future Value of an Annuity
• Goodwill and Patents
• Gross Profit Margin Ratio
• Interest Coverage
• Internal Rate of Return
• Liquidity Ratio Analysis
• Management Accounts
• Marginal Cost
• Marginal Rate of Substitution
• Market/Book Ratio
• Net Added Value (NAV) and Adjusted NAV
• Net Present Value
• Nominal and Real Interest Rates
• Option Pricing
• Payback Period
• Payout Ratio
• Portfolio Analysis: Duration, Convexity, and Immunization
• Price/Earnings Ratio
• Price Elasticity
• Price/Sales Ratio
• Quantitative Methods
• Rate of Return
• Reading an Annual Report
• Reserve Ratio
• Residual Value
• Return on Assets
• Return on Investment
• Return on Sales
• Return on Stockholders’ Equity
• Risk-Adjusted Rate of Return
• Scenario Analysis
• Sharpe Ratio
• Statistical Process Control Methods
• Stochastic Modeling
• Stress Testing
• Swap Valuation
• Term Structure of Interest Rates
• Tick Value
• Time Value of Money
• Total Return
• Treynor Ratio
• Value at Risk
• Weighted Average Cost of Capital
• Working Capital
• Working Capital Cycle
• Working Capital Productivity
• Yield
• Z-Score
• eCopyright