Besides information of the current period, it is highly rewarding for management to compare the corresponding details of information in the Trading Accounts of each of previous years for a chosen length of time in the immediate past for comparison, and analyses and for planning for growth. Reasons for variation would be the thrust of the comparisons and analyses so that corrective actions can be taken for future growth.
- It provides information on gross profit.
- Ratio of gross profit to sale helps to identify needs for and areas of, improving the administration in the business.
- Ratio of direct expenses to sales will help to control and rationalise expenses.
- "Stock in hand" indicates the efficiency of the production floor/shop processes and personnel besides the extent of coordination between the purchase units and the other units of the enterprise. By due comparisons and analyses, steps can be initiated and effected to improve profitability.
- Ratio of goods sold by the firm to the total sale by all similarly engaged concerns can trigger corrective action for price re-fixation (so as to not lose the current market share).
- Analysis of direct expenses can suggest needed precautionary measures to avoid possible losses.
The ruling principle throughout shall have to be that the Gross Profit disclosed by the Trading A/c is the very upper limit within which the operating expenses should be kept whereby the concern can look for savings for itself. And, in the case of new products under introduction to the market, the business concern can add the cost of purchases, production expenses and the gross profit margin desired and thereby fix up the selling price of the product(s).
No comments:
Post a Comment