Although P&L Accounts might differ in Format, the content is expected to address the same goal, whether costs are analyzed by type of operation (Format 1) or by type of expenditure (Format 2) 1.
As measurement of profit is often identified as the most important function of financial accounting, the Profit & Loss Account is of major importance to investors.
Hard facts and figures presented here, the turnover (or previously ÃÂsalesÃÂ) of the year in question, together with the expenditure, other operating and investment income make up the heart of the financial statement, informing the shareholder about the transactions and activities the company and all its businesses was occupied with in the period in question. Although this does not necessarily say too much about the future, it is fundamental in any decision to invest or not. It can be argued that it gives insight into the performance of the business in numerical form, it reports past events and actions which (as certified by the auditors statement) should provide a fair and accurate view ÃÂ more than a prediction or forecast, a normative statement could provide.
The eye of the shareholder will probably first set on figures such as EPS (earnings per share) and Dividend per Share, as this is what the average small scale investor is primarily concerned with. If these figures do not satisfy the expectations of a shareholders and explanation can not be found directly in the Profit and Loss Account, the notes accompanying it, will give more insight (e.g. Transfers and proposed Transfers to and from reserves etc.)The Balance SheetAs a Statement of Financial Position, the balance sheet provides the investor with insight into the Assets and Liabilities the Company and all its businesses own and owe. This is crucial for investment decisions, as the...