Question

Extracts Income Statements and Balance Sheets	2017	2018	2019
Sales	3,840	5,760	8,448
Cost of Sales	1,920	2,688	5,608
Distribution costs	384	462	676
Administrative expenses	1095	1,268	1,260
Interest expense (paid)	135	192	576
Taxation	76	268	150
Retained Profit	115	652	128
Fixed assets at cost	1,765	2,285	4,915
Accumulated depreciation	192	422	1,690
Closing Inventory at cost	154	346	752
Trade receivables	384	961	1,589
Prepayments	55	192	230
Overdraft	176	211	2,262
Trade payables	190	308	624
Accruals	155	384	576
Taxation payable	76	268	150
Debentures	640	385	250
Ordinary share capital £1	775	1000	1000
Retained earnings/Reserves	154	806	934

Can you help me explain why the net profit for 2018 is 1150?

Please explain with the precise calculations as well. Thank you!

Answer 1

Net profit for any company can be calculated by following formula.

Sales / Revenue XXX

- COGS (Cost of goods sale) XXX  

Gross Profit XXX

- Operating Expenses XXX

EBIT XXX (Earning before Interest and Tax)

- Interest XXX

Net Profit/ EBT    XXX (Earning before Tax)

- Tax XXX

PAT XXX (Profit after tax)

Therefore, in our case, Net profit for 2018 is 1150.

We can get Gross profit by deducting Cost of goods sold or factory related expenses from Sales. And after that by deducting administrative, office related and intrest expense from gross profit, we can get Net Profit.

Pariculrs		Amount
Sales		5,760.00
Cost of Sales		(2,688.00)
Gross Profit		3,072.00
Opearing Exp
Distribution Tax	462.00
Administartive exp	1,268.00	(1,730.00)
EBIT		1,342.00
Interest		(192.00)
Net Profit		1,150.00