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P and L Analysis

P and L Analysis

Factors that Affect the Net Profit

Several factors from ABC’s P&L statement influenced the variance in net profit before taxes between the two periods. One of these is gross profit, which focuses on the variable costs, such as inventory chargers, transportation charges, and cost of production. The gross profit for the first half of the fiscal year 202X was $ 171,674, while that of the last half of the same financial year was $ 161,319. The negative change implies that ABC Company managed its labor and supplies in production more efficiently in the first half of the financial year than in the second half of the fiscal year. Another notable factor that influenced the net profit before tax is the cost of goods sold/cost of sales. According to ABC’s financial statements, the cost of goods sold in the first and second half of 202X were $ 266,996 and $ 282,271, respectively. The increase in the price of goods sold suggests a decrease in the firm’s net income. While the variance was suitable for taxation purposes, ABC had less profit for its shareholders. In addition to this, operating expenses influenced the variation of the net profit. Notably, ABC’s operating expenses totaled $ 136,940 in the first half of 202X and $ 139,940 in the second half of the financial year. The increase in operating expenses indicates that the company had lower profits in the second half of 2020.

Influencing Factors for the Variation

Several circumstances underlie the changes in factors such as the gross profit and operating expenses. In terms of gross profit, the negative variation might have been caused by several business circumstances, including inaccurate scheduling or a high employee turnover rate (Mahdi & Khaddafi, 2020). Similarly, the increase in operating expenses in the second half of the financial year 202X might have been caused by high starting salaries or the high cost of business supplies (Mahdi & Khaddafi, 2020).

Recommendations

Improving ABC’s performance in the next 6-month period would involve putting in place some measures. Foremost, the company could increase its gross profit by finding lower-priced suppliers or incorporating labor-saving technology into its business operations (Mahdi & Khaddafi, 2020). ABC could reduce its operating expenses by lowering the starting salaries and implementing a working-from-home model to reduce or automate certain parts of the business (Himme, 2012). These changes could increase the company’s profitability in the long run.

References

Himme, A. (2012). Critical success factors of strategic cost reduction. Journal of Management Control23(3), 183-210. https://doi.org/10.1007/s00187-012-0157-8

Mahdi, M., & Khaddafi, M. (2020). The influence of gross profit margin, operating profit margin, and net profit margin on the stock price of the consumer goods industry in the Indonesia stock exchange in 2012-2014. International Journal of Business, Economics, And Social Development1(3). https://doi.org/10.46336/ijbesd.v1i3.53

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Question 


The report below shows a comparison of P&L Statements for ABC Company for the first and last halves of the year. Please use the following Excel spreadsheet for this information to aid you in your discussion:

P and L Analysis

P and L Analysis

 Instructions

Review the comparison of the statement for January 1 – June 30 with the idea for July 1 – December 31 and identify what factors influenced the variance in net profit before taxes between the two periods.

Compose a discussion board post, answering the following questions:

    • Which aspects of the report show factors that influenced net profit? INCLUDE ACTUAL NUMBERS FROM THE REPORT TO SUPPORT YOUR ANSWER.
    • Choose two of the factors identified above and deduce what might be the cause of the change reported. EXPLAIN.

Based on your comparison and deductions, what steps might you take to improve performance for the next 6-month period?

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