To study anything, you must have information that will allow you to carry out the necessary calculations, as well as formulate certain conclusions. Naturally, this also applies to conducting financial diagnostics of an enterprise. In this aspect, the most important source of information, as you probably already guessed, is the company's financial statements. It consists of a number of forms in which various data are presented that characterize the financial situation of the company. Now I would like to dwell on what can be “fished out” from the profit and loss statement.
The specified reporting form, as the name suggests, characterizes the enterprise from the point of view of the final financial result - profit. What is characteristic, this indicator cannot be called fully objective and unambiguous. This is also evidenced by the fact that only within the framework of this report you can find as many as four different profit indicators, namely: profit from sales, gross profit, as well as profit before tax and cleared of taxes, that is, net. But not all of these indicators are rightly called profit. The indicator of gross profit would be much more correctly called margin, since not all expenses are deducted from the value of income.
The very structure of the reporting form in question makes it very easy to determine the course of identifying the financial result of the functioning of the company. Let us consider, for example, how to calculate profit from sales. A simple look at the report is enough to understand that the following simple calculations are needed: sales revenue must first be reduced by the cost of the product, and then it should be cleaned of commercial and administrative expenses. In a similar way, you can calculate both taxable and net profit. Of course, for this it is necessary to take into account a larger number of indicators, which are given in the report below.
It is very important that this report provides tremendous scope for analysis. The simplest methods are vertical and horizontal analysis. The essence of the first is to study the structure by determining the relative weights. The basis of comparison is usually revenue. Carrying out this analysis allows, for example, to determine what share in revenue is the profit from sales.
In the course of horizontal analysis, the dynamics of indicators is studied over time. Using information for several periods, absolute and relative changes in indicators are calculated. Carrying out this type of analysis helps to identify trends in the financial result, as well as indicators that affect it.
The last type of analysis that we dwell on will be factor analysis. The study in this way is usually exposed to profit from sales, as well as net profit. In this case, factor analysis is quite easy, since the factors whose influence should be evaluated are already identified and presented in the report. However, attention should be paid to the fact that revenue is affected by price and sales. These factors are so important that their influence must be taken into account and analyzed separately.
After calculating the profit indicators and carrying out the necessary analytical procedures, it is necessary to formulate conclusions. They should be recommendations for increasing profits in one way or another, whether it be an increase in revenue, a decrease in expenses, or anything else. However, most likely, it will be necessary to study other indicators of the enterprise using various sources of information so that the solutions are most effective.