Income statements

• Profit

  The financial reward that entrepreneurs receive in return for the risks they take
• Profit


  • Helps new businesses survive and break-even
  • It is a reward for risks taken by entrepreneurs and investors
  • For more established businesses, profits can enable long-term growth
• Profit


  The surplus that remains after business costs have been subtracted from the total sales revenue
• Gross profit


  The difference between the money received from selling goods or services and the cost of making or providing them
• Net profit


  The difference between the gross profit and all of the other business expenses
• If costs exceed revenue, the business makes a loss
• Profit


  • Can be increased by increasing sales revenues
  • Can be increased by reducing costs
  • Can be increased by a combination of increasing revenue and reducing costs
• Profit


  A useful source of finance, e.g. retained profit can be used to fund the purchase of assets, pay bills and invest in research and development
• Profit


  An indicator of success, as increasing profitability suggests that a business is being run effectively and could be an attractive investment
• Some public sector organisations, such as public corporations, can have the objective of making a profit
• Social enterprises also need to make a profit to survive as they often have similar objectives to grow so that they can fund their social objectives
• Profit


  Calculated at a specific point in time
• Cash


  Measured by taking into account the full range of money flowing in and out of a business, including revenue from sales, operating expenses, investments, loans, and any other cash-related transactions
• A profitable business is likely to fail quickly if it does not have sufficient cash
• Cash-poor businesses will struggle to pay suppliers, employees and operating expenses, which is called insolvency
• Lifestyle retailer Joules announced plans to liquidate in December 2022 as a result of cash-flow difficulties, despite making a profit of £2.6 million during the previous year
• Income statement


  Records the income and costs of a business incurred over a period of time (usually one year)
• Gross profit


  Calculated by Sales Revenue - Cost of Sales
• Net profit


  Calculated by Gross Profit - Expenses
• Profit after tax

  Calculated by Net Profit - Tax
• Retained profit


  Calculated by Profit after Tax - Dividends
• Sales revenue

  Revenue generated through selling goods and services, calculated by Price x Quantity
• Cost of sales

  The cost of producing or buying in the goods actually sold by the business during a time period, including the costs of raw materials and labour used to produce the goods
• Income statements inform managers whether the business is making a profit or loss
• Income statements allow the comparison of performance to previous years, and with future forecasts, and can be used to make comparisons with competitors
• Finance managers are able to interrogate the data in income statements in order to make beneficial changes or set new strategic objectives
• Although Chillie's sells bubble tea drinks at a higher price

  Smoothies are more profitable for the business