Accounting for Managers - Essay Example

st detailed profit and loss account is given in the annual report, but UK listed companies are required to make annual and half year results announcements as well. The full year results announcement is shorter and covers the same period as the annual report, but it is released earlier. Many companies make quarterly announcements, as companies in the US and many other countries are required to. Unsurprisingly, UK listed companies that also have a US listing are very likely to report quarterly. In a simple case the profit or loss equals the increase or decrease in the companys assets as shown on the balance sheet.

This is rarely exactly true and the statement of total recognised gains and losses reconciles the P &L to the changes in equity shown on the balance sheet In accordance with the accrual principle, costs and revenues are matched so that, for example, sales and purchases made on credit during a year, but perhaps not yet paid for, will be included in the P & L for the year. Most of the detail in the profit and loss account comes from the need to provide detail of costs and, to a lesser extent, revenues.

This leads to the general form of a P & L that looks something like this: As can be seen, the P & L contains several profit numbers. Each of these gives us different, and useful, information. In addition, the P & L (perhaps together with other information) usually gives us enough information to calculate several other profit numbers such as EBITDA and EBITA These can give investors a better idea of the underlying business (the justification for doing it). For example, if the company has decided to sell a particular operation and the price has been agreed, shareholders do not really need to worry too much about that operations performance.

As well as the valuation ratios, the P & L provides the numbers for measures of the performance and efficiency of the business, such as margins, ROCE, and some measures of financial stability such as interest