Thursday 3 May 2012

Revision Diary 12 - Profit and Loss accounts

In the news Unlike most top football clubs, Arsenal FC is a Public Limited Company.  This means that its accounts are published and anyone can see how well its doing.  Arsenal is owned by Arsenal Holdings plc, with the main shareholder being Danny Fiszman, a Swiss-resident diamond dealer with 24.1%.  The club has two major trading arms football and property and is one of the few Premiership clubs that makes a profit. Posting £36.7m profit in the financial year ending 2008. ( Chelsea lost £76m in the same period and Man U £58m and Liverpool £22m in the same period.  The Profit and Loss account lets all shareholders major and minor and all stakeholders know how well a company is doing. Arsenal revenue was up £23m on the previous period to £223m due to selling more TV and broadcasting rights.  Match day tickets from supporters and season ticket holders was also up £94.6m 
    Group activity Punch 'arsenal holdings plc' into a search engine and you will see a list of sites that describe the company, what its worth and how it trades, who its directors are etc. Choose a few sites and see what info they provide and say which you thought was best.  

    The trading account sales revenue ;less the cost of sales (opening stock + purchases - closing stock) this gives the GROSS PROFIT

    The profit and loss account gross profit less other expenses such as rent, wages, transport, power, fuel, equipment to give the NET PROFIT

    The appropriation account net profit - tax - dividend = retained profit 

    Discussion The law requires companies to produce profit and loss accounts to certain standards and at regular intervals.  Why do you think that such accounts have to be made public? Do you think that it is fair that company income should be revealed to everyone in this way?

    Web-based activity Look at the other clubs in the football Premiership and find out which are publicly quoted.  Look at the profit and loss accounts for each (go to the 'corporate' or 'investors' part of the website) and decide which is the most profitable.  Make sure that you follow the rules for making comparisons.  If you are not interested in football, you could compare businesses in another sector, fashion for example, or technology.

    Quick Quiz 12 Understanding profit & loss accounts
    1. What is a public limited company?
    2. What is meant by 'sales revenue'?
    3. Name three other sources of income, besides sales revenue?
    4. Define Gross Profit
    5. Name the three parts of the profit and loss account.
    6. Explain what happens to retained profit.
    7. Outline the unusual items included in the cost of sales.
    8. Explain what is meant by 'dividends'
    9. Give one major limitation to the usefulness of profit and loss accounts

    Nine mark question 

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