Although a fundamental understanding of financial analysis is required for anyone in sales and marketing, it is not necessary to be a licenced accountant to create a Strategy for Sales Perfection. The temptation to adopt “blue sky” thinking while preparing sales and marketing strategies is too great, and it is frequently too simple. Even more so, it is simple to spend money without fully understanding the benefits. Sales and marketing leaders must be more methodical and analytical when creating, implementing, and assessing their plans and strategies for sales and marketing. Understanding the financial ramifications of decisions and how financial metrics can be used to monitor and regulate marketing operations is one way to add more discipline to the process. This text’s goal is to do just that, and the first chapter primarily introduces the steps needed in conducting financial analysis.
Financial Statement
The income statement, also known as the P&L (profit and loss) statement, is pictured below. This is a condensed version because most revenue statements have considerably more information; for instance, expenses are frequently stated individually.
Ledger of general ledger:
An organization’s financial performance over a certain accounting period is evaluated via the income statement. A summary of the business’s income and expenses from both operating and non-operating operations is provided to evaluate its financial performance. Additionally, it displays the net profit or loss for a given accounting period, usually for a fiscal quarter or year. The “profit and loss statement” or “statement of revenue and expense” are other names for the income statement.
Sales – Total sales (revenues) for the accounting period are referred to as sales. Keep in mind that these sales do not include discounts, allowances, or returns.
Discounts are rewards that clients receive for paying their bills on time and remaining loyal to your business.
Cost of Goods Sold (COGS) refers to the direct expenses incurred during the accounting period in connection with the sale of a good or a rendered service.
Operating expenses are any additional costs that the business incurs within the designated accounting period but are not accounted for in COGS. Sales salaries, payroll taxes, administrative salaries, support salaries, and insurance costs are all included in the “SG&A” (sales general and administrative) account. Common material handling costs include warehouse charges, maintenance, and office overhead (rent, computers, accounting fees, legal fees). Additionally, it is customary to allocate expenses for marketing and variable selling separately (travel and entertainment).
Earnings before income tax, depreciation, and amortisation is known as EBITDA. This is recorded as operating income.
Other income and expenses – These are all non-operating costs, like interest on cash or interest on loans.
Income taxes: For reporting purposes, this account serves as a provision for income taxes.
What Makes Up Net Income?
Operating income from continuing operations consists of all revenues less costs and expenses incurred in generating those revenues, net of returns, allowances, and discounts. Typically, COGS and SG&A expenses are subtracted from revenue.
Recurring (pre-tax) income from continuous operations – When deducting interest costs from this component, the financial structure of the company is taken into account.
Pre-tax earnings from continuing activities – Items that fall into either the unusual or infrequent category, but not both, are included in this category. Examples include the cost of terminating an employee, closing a plant, impairments, write-offs, write-downs, integration costs, etc.
The impact of taxes from ongoing operations is taken into account in the component known as net income from continuing operations.
Items That Don’t Recur:
Extraordinary items, discontinued activities, and accounting adjustments are all disclosed separately in the income statement. They are all excluded from income from continuing activities since they are all reported net of taxes and below the tax line. It may be necessary to make adjustments to earlier income statements and balance sheets to account for changes.
Income from discontinued operations – This component relates to income (or expense) incurred as a result of the closure of one or more divisions or operations (plants). In order to prevent these occurrences from affecting the company’s future earnings potential, they must be segregated. Because of the nonrecurring nature of this kind of nonrecurring event’s tax implications, it shouldn’t be included in the income tax expense used to determine net income from continuing activities. This income (or expense) is always reported after taxes for that reason. The same holds true for unusual items and the overall impact of accounting adjustments (see below).
Items that are extraordinary in nature – This component pertains to things that are both rare and unusual in nature. In other words, it is a one-time gain or loss that is not anticipated to happen again. Environmental cleanup is one illustration.
Ledger Balance
The balance sheet details the company’s assets, liabilities, and shareholders’ equity as of a particular date. It also shows the value of the company to its stockholders. Because the two sides balance out, it is termed a balance sheet. It seems obvious that a business would have to borrow money (liabilities) or raise money from shareholders (shareholders’ equity) in order to pay for what it owns (assets).
Assets are financial resources that are anticipated to bring their owner financial benefits.
Liabilities are debts owed by the business to third parties. Liabilities are the claims of third parties to the resources or services of the business. Bank loans, supplier debts, and employee debts are a few examples.
The value of a company to its owners after all of its financial obligations have been satisfied is known as shareholders’ equity. The owners own this net worth. Shareholders’ equity often includes the capital that the owners have invested as well as any gains that were later reinvested in the business.
The following formula must be used in the balance sheet:
Total Assets are equal to Total Liabilities plus Shareholder Equity.
There are numerous accounts in each of the three balance sheet segments that show the worth of each part. On the asset side of the balance sheet are accounts like cash, inventories, and property, while on the liability side are accounts like accounts payable or long-term debt. As there is no one specific template that accurately accounts for the variances between various types of organisations, the precise accounts on a balance sheet will vary by company and by industry. For more details Mortgage Brokers Melbourne
