Types of Result and Ratios

Types of Result

Did you know that accounting principles also distinguish between different types of results? We summarise them for you below. The distinction always has to do with which costs and revenues you allow when calculating the result.

source: pixabay.com

Operating result
The operating result is the most important section in the P&L for most companies. It deals with the income and the expenses which are connected to the operational activities. The operating result shows an important part of the result, but is not the total result

  • Operating income: the main operating income consists of sales, also known as turnover or revenue.
  • Operating expenses: the operating expenses are Goods and services, Salaries, Depreciation, Amortization and Provisions.

Financial results
The financial result states the income and expenses of the financial management of the company. The main cost is the interest paid on any debts. Interest can also be income if a company invests in cash. The dividend which a company pays out is not booked as a financial cost.

Exceptional results
The exceptional result (= exceptional income minus exceptional costs) is the result which comes from non-core activities. An example is selling a building.

source: pixabay.com

Ratios

We examined solvency and liquidity while discussing the balance sheet. There are also a number of interesting ratios based on the P&L. They will tell you something about the profitability of your business. About how profitable are your sales? Selling a lot doesn’t always mean making a lot of money. There are some simple calculations which give you a good view of the profitability of your activities.

Net profit margin
The net profit margin is obtained by dividing the profit after tax by the sales= Profit after tax/sales. E.g. a company generates sales of 500,000 EUR and makes a profit of 20,000 EUR. Profit/Sales = 20,000/500,000 = 0,04 = 4%

What does this number tell you? For each 1,000 EUR sold, 40 EUR remain after all the costs and taxes.

Gross margin
The gross margin tells you how much of the sales remains after the costs of goods and services = Sales – Goods & Services. E.g. a company has a gross margin of 125,000. What does thus number tell you? These 125,000 EUR need to be enough to cover all other costs (salaries, depreciation, amortization, interest and taxes).

EBITDA
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. Or put differently:
= Sales – Goods & services – Salaries. EBITDA tells you how much is left of the sales after the costs of goods, services and salaries. This has to be sufficient to cover all the other costs.