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Unit 5 Accounting M3

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Financial statements
In this report I will be mentioning financial statements such as profit and loss accounts and balance sheet and how they are used and their purposes. I will also state how and why Marks and Spencer uses these financial statements and what their statements show.

A financial statement (or financial report) is a official record of the financial activities of a business, individual, or other entity.
The purpose of financial statements is to provide information about the financial situation, performance and changes in the financial position of a business that is useful to a lot of users in making economic decisions for example during the recession businesses had to plan more carefully and place budgets in order to survive. …show more content…

It shows how the revenues (money received from the sale of products and services before expenses are taken out) are changed into the net income (the total after all revenues and expenses have been accounted for, also known as "net profit" It displays the revenues that have been taken in for a specific time period ;the cost and expenses charged against these revenues, including paying off of various assets and taxes. The purpose of the income statement is to show managers and investors whether the company made or lost money during the time period being …show more content…

Direct costs do not include operating expenses, interest payments and taxes.
Why is the gross profit margin important?
The figure is an sign of the financial success and sustainability of a specific product or service. The higher the percentage, the more the company retains on each pound of sales to service its other costs and responsibilities and this is what investors will look at when deciding to invest in a certain business as they will compare multiple businesses when deciding on the company to invest in as this shall have the highest gross profit margin.
ROCE – Return on capital employed
ROCE is the amount of money the business is making from the capital it has had invested in it.
ROCE is a financial ratio that measures a company's profitability and the efficiency in which its capital is employed. Return on Capital Employed is calculated as: Return on Capital Employed (ROCE) is calculated as a percentage.
A higher ROCE figure indicates more efficient the use of capital. ROCE should be higher than the company’s capital cost; otherwise it shows that the company is not employing its capital effectively and is not generating shareholder value because they are not using the money that is invested into the business by the

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