Name: 財務報表示例。盈利能力；營運資本。債務人和債權人 (Financial Statements Example: Profitability; Working Capital: Debtors and Creditors)
Uploaded: 2021-01-14T06:56:04.000Z
Duration: 16 min 34 s
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Hi, I'm Siu Ling Hui with Part 2 of a video series about how your financials can help

you manage and drive business success. In this video, we'll focus on trading activities

Let's take it from the start of a new business so we have a clean balance sheet to build

on. You put in $5,000 cash to get the business

off the ground. That cash is contributed as capital. That means you took up shares in

the business. You could have put the cash in by way of a loan from you personally to

the business but let's say it's capital for the time being. The business in involved in

Let's say you start the business on the 1st of January. Your balance Sheet at the end

of that very first day of business would show Cash of $5,000 as Assets and Paid up Capital

of $5,000 as Equity. And if you looked at the Cash Flow Statement

at the end of that very first day of business, it would show that $5,000 came in as Proceeds

from Equity Raising. That's the capital your put in.

That's the only transaction that happened this day. So the Net Cash Flow would be $5,000.

At the start of the day, your opening bank balance was zero and at the end of the day

it's $5,000. So that change in bank balance is exactly equal to the Net Cash Flow for

So you start trading! In your first month, you sell of $1,000 worth of widgets. $800

of these sales were on credit terms. You gave your customers 30 days to pay. $200 of the

sales was done on cash terms. The widgets cost you $500. Because you're

a new business, your widget supplier insisted on being paid in cash up front. Let's assume

that you sell all the widgets you bought during the month. In other words, you don't have

any inventory left at the end of the month. You also hired an assistant and paid wages

of $200. Now let's look what your accounts show you

Let's start with the Profit and Loss. You made sales of $1,000. The widgets cost $500.

That's your Cost of Sales or Cost of Goods Sold. So you have a Gross Profit of $500.

Then you had to pay wages. So that leaves you with a Profit Before Tax of $300. I'm

going to ignore the impact of taxes for the time being. Let's assume that Income Tax is

zero - so Profit Before Tax is equal to Net Profit After Tax.

So, what did this month's trading do to your business' financial position? Your balance

sheet as at 31st of January has grown as a result of the profit you made. You put in

equity of $5,000 on the 1st of January and that's grown to $5,300. Assets have also increased

to $5,300. But even though you made a profit, your cash went DOWN by $500 to $4,500. And

you've now got an asset called Debtors on your balance sheet.

To understand what happened with Cash, you need to look at your Cash Flow Statement for

the month of January. This Statement shows you that your operating activities used up

$500 of Cash because of working capital requirements. Specifically, because your business had $800

of cash being tied up in debtors. The Financing Activities section shows the

proceeds of $5,000 from equity raising earlier in the month when you set up the business.

So your Net Cash Flow for the month is $4,500. And that is exactly with the amount that your

bank balance changed by from the time you set up the business - just before you put

in equity - and at the close of business on 31st of January.

Now let's see what happens when we have credit terms from suppliers. In February, your business

doubles its sales to $2,000. $1,600 on 30 day terms and $400 on cash terms.

It cost you $1,000 to buy those all those widgets in February. When you were ordering

your widgets at the beginning of the month, your supplier was happy to give you credit

terms of 30 days from the date of invoice. So let's say you were invoiced sometime during

the 1st week of February That means you don't have to pay for the widgets until sometime

during the 1st week of March. Let's assume you had a complete sell-out again. In other

words, you don't have any stock left at the end of the month.

Your wages bill stays at $200. Now let's see what your financials show you

about your business at the end of February.

Your Profit & Loss for February shows sales of $2,000, double that of January. And better

still, Profit before tax of $800 is more than double that of last month. In other words

the business is more profitable now than it was in January. We'll discuss profits vs profitability

The fact that you got credit terms from your supplier has no impact on your profit and

loss. The use of credit terms - or for that matter, the extension of credit terms by you

to your customers - only has implications for your balance sheet and cash flow.

Your balance sheet now shows total assets of $7,100. That's a $1,800 increase since

the 31st of Jan. That increase is made up of a $1,000 increase in cash and a $800 increase

in Debtors. This business expansion has been funded by

using your own money -the $800 profit which increased Retained Earnings to $1,100 - and

from using "other people's money" - that's the Trade Creditors of $1,000. Now, if you

didn't have the credit terms from your supplier, you wouldn't have this $1,000 liability but

you would have reduced assets because you would have less cash.

But how did your bank account increase by $1,000 when you only had $800 in profits?

Look at your Cash Flow Statement. It shows you a $800 increase in Trade Debtors. Increases

in Debtors tie up cash - that's why it shows as negative in the Cash Flow Statement. Now,

you know that a pretty high proportion of your sales are on credit terms. So the increase

in debtors from February's sales should be much higher than $800. In fact, new debtors

from credit sales in February was $1600. The fact that the increase in debtors is only

$800 means you have received debtor payments during February and presumably it's all of

your January debtors. I say "presumably" because you don't actually know who paid or didn't

pay you until you review the report called the Aged Debtors Listing. I'll get to what

an Aged Debtors Listing is in a moment. The $1,000 increase in Trade Creditors means

your supplier effectively provided you with "funding" during February. You got widgets

to sell without having to pay for them first. The net effect of the timing differences in

receipts and payments of your operating transactions ended up generating positive cash flow of

$200. This Cash Flow generated by Working Capital movements, together with your Net

Profit figure, gives you Net Cash Flow from Operations in February of $1,000. There are

no Investment and Financing Activities in February. So $1,000 from Operations is your

Net Cash Flow for the business for the month. And that reconciles exactly with the change

in your bank balance between the 31st of January and the 28th of February.

Let's look at Profit vs Profitability. Gross Profit is the profit you make after deducting

the cost of the goods sold from your sales. You've still got to cover overheads and other

expenses. Profit before tax is the profit your business makes after deducting overheads

and other expenses but before paying income tax. In this example, we've only got wages

as an expense. All these profit numbers are absolute numbers.

You do need to know whether your business is making a profit or not. But these numbers

don't show you how profitable your business is. Profitability is about how efficient your

business is in turning your sales into profits. That's where ratios come in.

Gross Profit margins gives you insights into how your business is pricing its products.

The Gross Profit Margin is the ratio of Gross Profit to Sales, expressed as a percentage.

A 50% margin - as it is in this case - means that you marking up your products by 100%.

The Net Profit Before Tax Margin tells you how efficient your business is at turning

your sales into profit before paying income taxes. It is the ratio of Net Profit before

Tax to Sales, expressed as a percentage. In this example, you achieved increased profitability

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財務報表示例。盈利能力；營運資本。債務人和債權人 (Financial Statements Example: Profitability; Working Capital: Debtors and Creditors)

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