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Review question - interpreting P&L account profiles

Here is another example with five companies (Table 3.7). Firstly, have you any idea what sectors they might be in?

TABLE 3.7 Five companies 'P&L profiles

A

B

C

D

E

Sales

100%

100%

100%

100%

100%

COS

28%

80%

32%

67%

49%

GP

72%

20%

68%

33%

51%

Marketing and sales

26%

0%

29%

7%

25%

Research and development

18%

4%

14%

1%

9%

General admin

5%

8%

6%

11%

5%

Other income

2%

2%

0%

11%

3%

Other expenses

4%

0%

5%

13%

5%

The business sectors are: a telecoms company, an engineering company and three pharmaceutical companies.

Do the pharma companies stick out? What is the biggest expense they will have?

Research and development - without new drugs the businesses will be unsustainable in the long term. The pharma companies are A, C and E, with 18, 14 and 9 per cent R&D expenditure. What may come as a surprise is that marketing and sales are a staggering 26, 29 and 25 per cent of sales -are pharma companies really 'drug pushers'? Certainly the strategy of having to market products has been obvious for years; there have been movies on the topic, and companies around the world have been taken to court for unethical and illegal behaviour when promoting products.

Profile B is the engineering company and D the telecoms company.

The companies are Novartis, Rolls Royce, Pfizer, Vodaphone and Bayer and the figures come from their published accounts.

This example is meant to help you understand and relate to income statements and not simply take a swipe at the pharma industry, but it does illustrate that your strategies will be revealed in the accounts and you cannot, short of fraud, hide what you are up to.

The P&L account, income statement, earnings statement (or also revenue statement) will inevitably be referred to when monitoring strategy and may be forecast when strategies are to be planned.

The bookkeeping and record keeping and internal controls, which underpin the reports, are considered further in Chapter 4. Chapter 5 considers the fundamental and other concepts in much more detail, Chapter 6 looks at published financial statements and Chapter 8 looks at cash flow analysis and published statements of cash flow.

Comprehension of all of these is necessary for the development, implementation and monitoring of strategies to achieve the stated objectives or goals.

 
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