|Turnover - This is another term for sales. It represents
all the cash and credit sales made outside the group during the financial
period. The notes usually provide a geographic breakdown of sales.
Gross Profit - The gross profit represents the
company’s sales during the financial period less the costs
of buying the goods that have been sold. It is sometimes referred
to as a measure of the company’s success in the marketplace
before taking into account the ‘supporting’ expenses
such as administrative costs etc.
Operating Expenses - These come under broad headings
such as administrative expenses, research and development (where
relevant) and distribution costs. The notes to the accounts reveal
a little more information about operating costs, especially with
regard to auditors’ fees and depreciation.
However, the breakdown of expenses is not very detailed and certainly
a lot less detailed than many managers are used to seeing in internal
company management reports. One of the reasons for this is that
companies do not want to reveal in the public domain too much commercially
sensitive information which could be of value to competitors.
Depreciation and amortisation are described below in section 3.2.3.
Operating Profit - Operating expenses are deducted
from gross profit to arrive at the next ‘layer’ of profit,
operating profit. This is a key measure of the company’s trading
performance before taking into account the financial charges of
Net Interest Payable - This is the interest payable
on loans, overdrafts and leases less interest receivable in the
financial period on investments/bank deposits.
Profit on Ordinary Activities before Tax - This
measures the profitability of the business before the deduction
of tax and dividends.
Taxation - This refers to corporation tax which
is the tax levied on company profits.
Profit for the Financial Year - This profit is
the remaining profit available for shareholders.
Dividends - Dividends are that part of profits
paid to the shareholders in proportion to the number of shares they
Retained Profit - The retained profit is reinvested
in the business and added to the reserves as described in chapter
Earnings per share - This is calculated as the
profit for the year after tax divided by the average number of shares
in issue during the year. This is an important stock market ratio.
Alternative EPS calculations are also shown. Normalised earnings
per share is shown after adjusting profit after tax for the effects
of goodwill amortisation and is more indicative of underlying performance.
In the final calculation the weighted number of shares is adjusted
for the number of shares under option.