Question

A P&L statement and/or calculation can be used to report financial performance in which of the following applications. Circle all that apply.

A. Reporting profit of entire business

B.Determining Profitability of a single product

C.Measuring financial contribution of an advertising campaign

D.Determining the cost per acquisition of new customers generated by an ad

E. Measuring brand awareness

Answer 1

Solution:

Followings are explained as it apply or not:

A. Reporting Profit of entire business – Applies

A profit & loss statement is a financial report that provides a summary of a company’s revenues, expenses and profit or loss over a particular or given period of time. So, the definition only describes that.

B. Determining profitability of a single product – Not Apply

As profit & loss statement is a summary of a company’s revenues, expenses and profit or loss, so the incomes and expenses are presented combined for all the products. Moreover no quantitative data is shown in P&L statement, it is value based. So, it is not possible to determine profitability of a single product.

C. Measuring Financial contribution of an advertising campaign – Applies

P&L statement presents the data of current financial year along with previous years. So, by analyzing the increase or decrease in sale or contribution from the previous, we can reach to a conclusion that how much part of the sale or financial contribution is generated from advertising campaign.

D. Determining the cost per acquisition of new customers generated by an ad – Applies

In the profit & loss statement the expenses are divided and grouped under various heads as per the nature of the expense. So the advertising and promotion expenses are shown separately in the statement. Thus the cost is determinable.

E. Measuring Brand Awareness – Not Apply

Brand Awareness cannot measured just with the help of profit & loss statement. Balance sheet along with the ratio analysis is required for that.

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