Understanding Financial Statements: Profit, Loss, and Balance Sheets

Profit and Loss (Income Statement)

The profit and loss statement, also known as the income statement, summarizes a company's revenues, costs, and expenses during a specific period.

A) Operating Result

• Income:
  • Income from holdings
  • Product sales
  • Service provisions
  • Other regularly obtained income
• Operating Expenses:
  • Purchase of raw materials, components, and merchandise
  • Salaries and Social Security (SS)
  • Rent, supplies, repairs, and conservation expenses
  • Amortization (Depreciation)

B) Financial Result (I-II)

• I) Financial Income:
  • Interest and dividends received
• II) Financial Expenses:
  • Interest paid

C) Result Before Taxes (A + B)

D) Net Result (After 30% Corporate Tax)

Balance Sheet

Assets

1. Non-Current Assets
   • a) Intangible
   • b) Tangible (Material)
2. Current Assets / Circulating Assets
   • a) Inventories (raw materials, parts, merchandise, fuel, finished products)
   • b) Realizable (clients, customers, receivables, HP debtor, SS debtor)
   • c) Treasury / Available
     • Banks
     • Cash

Liabilities and Equity

1. Net Assets / Equity
   • Social Capital
   • Reserves (retained earnings)
   • Profit & Loss (Profit for the year)
2. Non-Current Liabilities (Long-Term Payable)
   • Amounts owed to banks (Long-Term)
3. Current Liabilities / Circulating Liabilities
   • Suppliers
   • Payables
   • Social Security (SS)
   • Amounts owed to banks (Short-Term)

A = P: = A + P (Assets = Liabilities + Equity)

Key Concepts

Operating Result: Reflects the profit or loss that the company obtained in a given period.

Net Result Distribution: 10% to legal reserve until the reserve reaches 20% of the capital, and the remaining amount (approximately 70%) is available for dividends.

Accounting: The function of collecting and quantifying economic information generated in the business and communicating it to end-users for decision-making.

End-Users: Owners (partners or shareholders), banks, and other stakeholders.

Account: A record that collects and evaluates the different assets of a company.

Patrimony: A set of assets, rights, and obligations of a company. A company's assets are divided into two large blocks.

Balance Sheet: A document that reflects the financial situation of a company at a given time.

Assets: The monetary valuation of all property and rights of the company. It shows how the company has invested its resources.

Liabilities: The resources that have enabled the company to acquire the rights and property.

Fixed Costs: Costs that are independent of the units produced.

Profits = Total Revenue - Total Costs

• Profit = B
• Total Revenue = TR
• Unit Price = p
• Units Sold = q
• Total Costs = TC
• Total Variable Costs = TVC
• Total Fixed Costs = FC
• Unit Variable Cost = UVC
• Break-Even Point (Quantity) = FC / (p - UVC) = FC / (Unit Contribution Margin)
• Break-Even Point (EUR) = FC / Contribution Margin Ratio