Statement of Comprehensive Income

Statement of comprehensive income: - Is a financial document

showing a firm’s income and expenditure in a particular time
period.
Profit: -Money left over after all costs have been subtracted
from revenue
Distributed profits: - Profit that is returned to the owners of a
business
Retained profit: - Profit held by a business rather than
returning it to the owners and which may be used in the future.
Dividend: - Share of the profit paid to shareholders in a
company
Sample statement of comprehensive income

2016 2015
US$ 000 US$ 000
Revenue 5400 4900
Cost of Sales 3500 3100
Gross profit 1900 1800

Administration Expenses 750 700

Other operating expenses 160 150
Operating profit 990 950

Finance costs 100 100

Profit for the year 890 850

Taxation 160 150

Profit for the year after Taxation 730 700

Cost of sales = Opening stock + (purchases – returns outwards) + Carriage Inwards –
closing stock)
Examples of expenses include; Administrative expenses
(Salaries, stationery supplies, IT expenses, accounting fees,
telephone bills etc.), selling expenses (sales commissions,
advertising, distribution and promotional expenses) and
other operating expenses (subscriptions, postage etc.)
vi) Finance cost: - Interest paid on loans
vii) Finance Income: - Interest received by the business on
deposit accounts
viii) Profit for the year: - Profit level obtained if the cost of
finance is subtracted from the operating profit (Net profit
before tax)
ix) Profit for the year after tax: - Refers to the amount of
money left over after all expenses including taxation, have
been subtracted from revenue.
Sample statement of comprehensive income

2016 2015
US$ 000 US$ 000
Revenue 5400 4900
Cost of Sales 3500 3100
Gross profit 1900 1800

Administration Expenses 750 700

Other operating expenses 160 150
Operating profit 990 950

Finance costs 100 100

Profit for the year 890 850

Taxation 160 150

Profit for the year after Taxation 730 700

USES OF STATEMENT OF COMPREHENSIVE INCOME
Investment decisions: - If profits are rising, decision makers
may be encouraged to use more funds for investment. In case
the business is struggling, investment plans might be
postponed.
Cost Analysis: - It shows all the costs hence the ease of
identifying those are increasing for purposes of controlling
them. E.g. sales costs, wages, production costs etc.
Basis for making future forecast: - This is crucial for
shareholders who may need to know the expected future
performance of the business.
Making comparisons: - Comparisons between different
financial years or different areas in a business to determine
those that may need more funding/investment.
STATEMENT OF FINANCIAL
POSITION (BALANCE SHEET)
Statement of Financial Position – Is a summary at
a point in time of business assets, liabilities and
capital.
Assets: - Refers to the resources owned or used by a business such as
cash, stock, machinery, tools and equipment.
Liabilities: - Refers to what business owes/ its debts which provide a
source of funds.
Capital: - Finance provided by the owners of the business
NOTE: - In statement of financial position, the value of assets will equal
the value of liabilities and capital. This is because all resources
purchased by a business have to be financed from either capital or
liabilities. Therefore: Assets = Liabilities + Capital (Book- keeping
Equation)
Main features
Non-Current Assets: - Assets that last for more than one year e.g.
property, fixture and fittings, premises (buildings), land, furniture, motor
vehicles etc.
Current Assets: - Assets likely to be changed into cash within a year.
They are liquid assets.
Examples
 Inventories (stock), semi-finished or finished goods
 Trade receivables (debtors) : Amounts of money that are owed to a
company by its customers.
 Cash in hand and in the bank
NOTE: Liquidity refers to the ease or speed with which assets can be
sold for cash.
Current Liabilities: - business debts that have to be repaid within a
year.
Examples
 Trade payables (creditors) – Money owed to suppliers.
 Taxation: - Money owed by the business to the tax authorities.
 Leases and hire purchase (other forms of borrowing)
 Short term loans and bank overdrafts
Net Current Assets (working capital): - Current assets minus current
liabilities. Working capital is the value of liquid resources that can be
used to meet the running costs of a business.
Non-Current Liabilities: - Debts that are payable after one year.
Examples
 A mortgage – a long term secured loan taken to buy property.
 Long term bank loans
 Long term leases or long term hire purchase agreements.
Net Assets: - The value of all assets less the value of all liabilities.
Shareholders’ Equity – Refers to all money owed to the owners.
Also referred to as shareholders’ Funds or capital and Reserves. It
includes:
Share capital: - The amount of money that shareholders have put
into the business
Retained profit: - The amount of profit that has been kept in the
business.
Other reserves i.e. any other money owed to the shareholders and not
listed in the other two categories.
Capital Employed: - The amount of money that the owners have
invested in the business.
Sample statement of financial position
US$ 000
Non-Current Assets
Property 340
Fixture & Fittings 100
440
Current Assets
Inventories 150
Trade receivables 78
Cash 56
284
Current Liabilities
Trade Payables 112
Taxation 12
124
Net Current Assets 160

Non-Current Liabilities
Mortgage (60)
Net Assets 540

Shareholders’ Equity
Share capital 100
Retained profits 395
Other reserves 45
Capital employed 540
 Interpreting Statement of Financial Position
It can be used to evaluate business performance and potential. It
indicates:
 Value of all business assets, capital and liabilities
 Asset structure of a business (how the money raised by the business
has been spent on the different types of assets)
 Capital structure of a business – An analysis of the different types of
funding the business has used.
 Value of net current assets showing the working capital available
which indicates whether a business has enough liquid resources to pay
its immediate bills.
NOTE: Some businesses have non-physical assets such as goodwill
(value that a company has because it has a good relationship with its
customers and suppliers).
 RATIO ANALYSIS
It’s a mathematical approach to investigating accounts by
comparing two related figures.
There are different types of financial ratios:

They measure the performance of the business and focus on

profit, revenue and the amount invested in the business.
Sample statement of comprehensive income

2016 2015
US$ 000 US$ 000
Revenue 5400 4900
Cost of Sales 3500 3100
Gross profit 1900 1800

Administration Expenses 750 700

Other operating expenses 160 150
Operating profit 990 950

Finance costs 100 100

Profit for the year 890 850

Taxation 160 150

Profit for the year after Taxation 730 700

Mark-up can as well be calculated based on
profit made per item.
Example:
Assuming that the cost of Mabuyu is 2500 and our own
business lady is planning to add a mark-up of 25%, what
will be the market price of Mabuyus?
 It compares the profit (return) made by the business
with the amount of money invested (its capital). The
advantage is that it links the profit to the size of the
business.
Can be calculated using the formula:
ROCE =
 Return on capital measures the efficiency with which
the firm generates profits from the funds invested by
the owners.
 Higher percentage means that the management is more
efficient in using the resources availed by the investors
to generate high returns.
 A ratio of 2:1 is considered ideal. A ratio of less than 1 is
bad as it means the business will not be able to pay off its
current liabilities as and when they mature.
 Ratio 1.5 : 1 is fair
 A higher ratio such as 4: 1 means that the business will be
able to easily pay off its debts when they mature. However,
this may also mean that they’re tying up too much in the
current assets such as stock, instead of investing elsewhere
to earn more returns.
This ratio measures the ability of a business to pay all short
term debts as they mature without necessarily having to sell
stock. Stock is excluded since it may be unreliable when the
firm is under pressure to pay its debts.
 2013 2014 2015
Million Million Million
Revenue 12.5 9.6 11.9
Operating profit 1.13 0.34 1.17
Current Assets 3.21 2.59 3.99
Current Liabilities 2.16 2.55 2.43
Capital employed 10 12 12
Using above financial information;

Work out: - For each of the three years.

 Operating profit margin

 Current ratio
 ROCE
 THE USERS OF
FINANCIAL DOCUMENTS