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Profit and Loss Statement Paper Essay

Before beginning, it should be noted that although this project is to be for a Profit and Loss (P&L) Statement, only an Income Statement is available at the Kudler Fine Foods website (Apollo Group, 2011). However, Income Statements and P&L Statements are, for all intents and purposes, the same thing.

With that said, it cannot be determined conclusively by reading the Income Statement for Kudler Fine Foods if the report is monthly, quarterly or yearly—or if the reports are constructed on a different fiscal schedule. The date at the top, however, reads “For the Year Ended December 31, 2003”. For this reason, it was determined to treat this report as an annual report with a fiscal year ending December 31, 2003.

An Income Statement is important to a company because it is used to record and calculate the costs, expenses, taxes and profits of a company over a specified period of time (Nickels, W. G. et al. 2010). It breaks down into an itemized list, these expenditures and profits so readers may easily follow the flow of information. Income Statements have the following parts:

• Revenue

• Cost of Goods Sold (COGS)

• Gross Profit

• Operating expenses/ Net Operating Income

• Net Operating Income/Net Income

The information below will cover the significance of each of these 5 parts and will speak to the importance of each with regard to Kudler Fine Food’s performance in 2003.

Revenue

The Revenue of Kudler Fine Foods consists of Gross Sales minus Sales Returns and Allowances. This is to mean that Sales Returns and Allowances are subtracted from whole amount of money brought in through all sales (Gross) made over the course of the year. Sales Returns and Allowances are significant in calculating revenue because they represent the hidden cost of customer satisfaction such as when a customer wishes to return an unused or defective product and requires a refund (Nickels, W. G., McHugh, J. M., & McHugh, S. M. 2010). When the calculation is complete, one ends up with the Net Sales for Kudler Fine Foods, which is for the Fiscal Year, 2003, $10,796,200.00 (Apollo Group, 2011).

Costs of Goods Sold (COGS)

The COGS is important to a company because it speaks to the costs, both direct and indirect, of the product(s) a company sells (Nickels, W. G. et al. 2010). For Kudler Fine Foods, COGS encompasses the cost of 2003’s beginning Inventory, plus the cost of purchasing of products, the freight in of the products, the direct labor involved and any other Indirect Expenses. Added to this, there was inventory remaining unsold at the end of the year, 2003 and so that must be added to the COGS. When this calculation is complete, COGS for Kudler Fine Foods is $8,474,831.00 (Apollo Group, 2011).

Gross Profit (Loss)

The Gross Profit or Loss for a company is the amount they have earned or lost as a function of Total Revenue less COGS (Nickels, W. G. et al. 2010). For Kudler Fine Foods, 2003 was a profitable year, with a gross profit of $2,321,369.00 (Apollo Group, 2011).

Operating Expenses/Total Expenses

However, a company’s Gross Profits and Losses fail to consider the expenses of day to day operations for the business. Advertising expenses, Wages, Amortization of Equipment, Insurance, Postage, Professional Fees, Interest on loans, Building Leases, Office expenses…etc and many other noteworthy expense items are placed on this list and calculated to give a breakdown of the accumulated yearly cost just to operate the business (Nickels, W. G. et al. 2010). When looking at the numbers, one finds that the Total Operating Expenses for Kudler Fine Foods in 2003 was $1,652,419.00 (Apollo Group, 2011).

Net Operating Income

Net Operating Income is significant as a measure of what the company has left after all expenses are deducted from the year’s total income. Kudler’s Fine Foods has a Net Operating Income of $668,950.00 (Apollo Group, 2011) after all expenses except taxes. Now it is important to account for any other, miscellaneous income, such sales of assets and interest on money in savings.

For Kudler Fine Foods, this amount is $7,845 (Apollo Group, 2011) and will be added to the income of the company to reach a final, Net Income of $676,795.00(Apollo Group, 2011).

Conclusion

Kudler Fine Foods, though fictitious, is doing very well for itself—even when compared to a large supermarket chain like Walmart. When dividing the Net Income of Kudler Fine Foods, $676,795.00, by the company’s Net Sales $10,796,200.00, we get a before-tax profit margin of 6.268%. This means that Kudler Fine Foods has almost double the pre-tax profit margin than Walmart’s post-tax profit margin of 3.515% (Ycharts, 2012). This means that
unless the yearly taxes due for Kudler Fine Foods is about 50%, they will likely have higher profit margins than Walmart. That is pretty good for a fictitious company…

References:

Apollo Group. (2011). Income Statement For the Year Ended December 31, 2003. In Kudler Fine Foods. Retrieved October 19, 2012, from https://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Kudler2/intranet/income-statement.asp

Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed., pp. 456-471). New York, NY: McGraw-Hill/Irwin.

Ycharts. (2012, October 23). Income Statement For the Year Ended December 31, 2003. In Ycharts: Wal-Mart Stores Profit Margin Quarterly. Retrieved October 19, 2012, from http://ycharts.com/companies/WMT/profit_margin


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