P&L for Masks R Us Ltd:
a)
|
|
$
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$
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|
Sales ($8 * 15,000)
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|
120,000
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|
Cost of Goods Sold:
|
|
|
|
Opening stock
|
9,000
|
|
|
Purchases
|
40,000
|
|
|
Less Closing Stock
|
8,000
|
|
|
|
|
41,000
|
|
Gross Profit
|
|
79,000
|
|
Less Overhead expenses
|
|
18,000
|
|
Net Profit
|
|
61,000
|
|
|
|
|
|
b) Gross profit is healthy since it represents around 66% of sales income. Net profit is also healthy, at over 50% of sales returns, because overheads are not important. However, since the P&L account is only a snapshot of the position of Masks-R-Us, no firm conclusions can be made. To make a suitable judgement of the financial position, the firm's cash flow statement, cash flow forecast and balance sheet should be used. In addition, there is a need to benchmark the data, i.e. inter-firm comparisons and historical.