ae 5 Company accounts foe Discuss these questions. 4 What does the profit and loss account of a company show? 2 IFyou were the company’s bankers, what would you look for when reading this account? 3 What does a company’s balance sheet show? 4 What would the company’s bankers look for in the balance sheet? _ Eee Read the financial data produced by British Airways and published on the Internet for investors. TONE ‘AUDITED for the year to March 31, 1998, million 1998 1997 ‘Most of our revenue was earned from aur main business, alline operation 7,881 7.608 Income from other activities earned: 761 751 This gave us total Group turnover of 8,642 8,359 Our expenses comprised Payand other employee costs 2201 Depreciation of fixed assets 351 Selling costs 1217 Other operations costs: bs 4.159 {total thevefore, our overall Group opevating costs wer: B38 ducting this from our Group turnover left Group operating profit of 304 Other income and charges amounted to 80 The net profi on sale of fied asets during the year was: 164 Net interest payable amounted to: ass) This produced a Group profit before ix of 580 ‘Then we provided for tax totaling: 033) ‘This proce» Group profit ater tax of 7 Profit or loss frorn subsidiaries in which we have a minority ineresie 3 ‘This lt a Group profit attributable to shareholders of 260 From this we alowed for dividends representing a total of a6) Finally, this eta profi retained in the busines of 284 ‘Barnings per share ‘The standard measure ofa company’s profitability is calculated by dividing profit stributable to shareholders by the average number of shares. (On this basis, our earnings per share were aap 55.2pCompany accounts | ETNA nO AUDITED for the year to March 31, 1998 million 1998 1997 ‘The Group's fixed assets comprised: Our fleet: 7276387 Property: 181 988 Computers, round and other equipment: 259 263 Investments in other businesses: 388 684 ‘Added together these represented total fixed assets of 9,055 272 Our current assets, mainly money we are owed, our ‘cash-in-hand and stock, represented 2,245 2.164 ‘Most passengers book and pay for tickets in advance. This money, and amounts owing to creditors that are payable within one year, totalled: (2821) G,160) Deducting this gave us net current liabilities of (576) (296) ‘Adding this to the total fixed assets left us with total assets less current liabilities of 879 aT In addition, we owed to creditors amounts due after more than a year including Long-term borrowings of (4,978) (4,034) ‘We have also made provision for other abilities and charges: (180) (284) Wealso had contributions ftom a minority shareholder in one of our subsidiaries of = 26 ‘Thus our assets less liabilities represented: 3321 2.984 ‘The money invested in the British Airways Group comprised: ‘Our share capital, some 1,038.9 million 25p shares: 260 251 Our reserves: weft 3,081 2733 3321 2.984 Note: Ifyou are not familiar with the terms used in these accounts, do Vocabulary task A: Key terms to check the definitions before attemptirg the Reading tasks. A Understanding main points 4 Mark these statements T (true) or F (false) according to the information in the profit and loss. account. Find the part of the text that gives the correct information. a) The total Group turnover increased slightly on the previous year. T b) Salaries paid to employees are part of the operating costs. ©) Interest payable on loans is deducted fram the profit after tax. d) British Airways sold off some of its assets in 1998. e) All the profits distributed to shareholders. £) Earnings per share were lower than in the previous year.Company accounts 2 Mark these statements T (true) or F (false) according to the information in the balance sheet. Find the part of the text that gives the correct information. a) The airline's fixed assets include aircraft. T b) The company had acquired new aircraft since the previous yeat. ©) The amount of current assets was greater than the amount of current liabilities. ) Net current liabilities are calculated by deducting current liabilities from total assets. €) British Airways had issued more than a billion shares at the time of publishing these accounts. f) British Airways had increased its reserves since the previous year. _ RSs A Key terms Match these terms with their definitions. 4 turnover —_ 2 operating costs 3 operating profit 4 depreciation 5 fixed assets 6 dividend 7 current assets 8 creditors 9 current liabilities 40 share capital 41 reserves B Other terms a) amount deducted each year from profits to allow for the fact that assets (e.g. equipment) lose their value as they get older b) total sales during a trading period ©) people the company owes money to, e.g. suppliers d) past profits not paid out as dividends but retained in the business e) short-term assets used in operations, e.g. cash, items held in stock £) money which shareholders have put into the business g) long-term assets owned by the company, e.g. buildings, machinery fh) expenses of running a business including salaries, rent, etc. but not including the direct costs of manufacturing 1) result of deducting the operating expenses from turnover )) part ofa company’s profits paid to shareholders 10) debts that must be paid within one year The terms below were not used in the British Airways financial daca, but are often found in balance sheets. Do you know what they mean? If not, check the Key. 4 debtors 2 long-term loans__Company accourts C Complete the sentence Use an appropriate word or phrase from the box to complete the text below. waseamed allowed addedto this comprised deducting this overall amounted to left totalled Income from sales 50,000 Income from consultancy 2,500 Total: 52,500 Costs: electricity 500 phone B00 rent 10,500 office supplies 2,400 advertising 4,200 other selling costs 2,900 depreciation 700 Total: 22,000 Profit before tax: 30,500 ‘Most of my income .¥#/44, from sales which I received consultancy fees of £2,500. This . esses total turnover of £52,500. My expenses . +: electricity, phone, office rent and office supplies of £14,200. My advertising and selling costs were £7,100. I -? £50,000. .. £700 for depreciation. Thus, my .... ” operating costs were £22,000. * from my turnover ... 9 an operating profit before tax of £30,500. D Definitions 1. Which word or phrase from the profit and loss account fits each of these definitions? a) 2 standard measure of how profitable the company is earnings per share 'b) the total amount of profit which is given out to the shareholders in dividends 2 Which word or phrase from the balance sheet fits each of these definitions? a) money which the company has available to spend immediately b) goods and supplies which the company has bought but not yet used ©) money which is set aside for possible future expenses 1 Make comparisons berween the British Airways figures for 1997 and 1998. Which amounts were higher, better, lower or poorer in 1998? Would the shareholders be satisfied with the (998 figures, do you think? Why / Why not? 2 Find financial data from other companies, for example from your own company or from 2 company’s annual report. Describe the main points from the data either orally or in wr