NEED HELP IN ANALYSING THIS INCOME STATEMENT ACCORDING TO THE INSTRUCTION BELOW. Income Statement Analysis Paragraph...

1. Overview of the Income Statement of the Company:

The Income Statement of the Company has been presented to the users of the Financial Statements at the Annual General Meeting. The Income Statement depicts the profitability of the Company for the Financial year or the period specified, as applicable. It shows the financial performance of the Company for the specific period. Further, through the Income Statement, a user can analyze the trend in sales, Expenses, Finance Expenses and other operating expenses of the Company. The Income Statement gives a picture of the performance of a company against the various efforts undertaken to run the Company.

2. Trend In Sales:

From the above Income Statement, we can see that there is an increasing trend in sales. Sales of the Company have been increasing at an increasing rate. From FY 2016 to FY 2017, the sales have been increased at the rate of 5.68% (approx. 6%) [(62761-59387)/59387 *100]. Sales have been increased at the rate of 12.89% [(70848-62761)/62761*100] from FY 2017 to FY 2018. The rate of increase has been doubled from FY 2017 to FY 2018 as compared to the rate of increase form FY 2016 to FY 2017. Hence, we can say that the Company is increasing its market share at an increasing trend contributing to the increase in Profit of the Company.

3. The trend in Cost of Sales and Gross Profit:

For FY 2017, the Cost of sales has been increased at the rate of 2% [i.e., (23663-23154)/23154*100]. For FY 2018, the increase in the cost of sales is at the rate of 14.57% [(27111-23663)/23663*100]. Hence, the cost of sales for the year 2017 has been increased at a lower rate as compared to the increase in sales of the Company, which shows the effective cost management of the Company. However, for the year 2018, the cost of sales has been increased at a very high rate as compared to the increase in sales thereby affecting the profitability of the Company and depicting the in-effective cost management of the Company for the year 2018.

The Gross profit of the Company has been increasing at an increasing rate. However, it is not directly proportional to the increase in sales due to the increasing level of Cost of sales. The Gross profit has been increased at a rate of 7.90% from FY 2016 to FY 2017 whereas the same has been increased at the rate of 11.87% from FY 2017 to FY 2018. If the Company adopts the cost-effective methods of production, the Company can earn an increase in Gross profit at the rate directly proportional to the sales of the Company.

4. The trend in Operating Expenses:

The Operating Expenses have been decreasing from FY 2016 to FY 2017 and then FY 2017 to Fy 2018. Despite the increase in sales and operations of the Company, the Operating expenses are decreasing which is favourable to the Company in terms of net profit. This shows that the company has been adopting cost control and reduction methods to reduce the operating expenses of the Company. The Company is expected to continue the cost reduction procedures further to reach the optimum profitability level.

5. The trend in Interest Expenses:

The Company has started earning the Interest income from FY 2018. During FY 2016 and FY 2017, the Company has incurred the Interest expenses. During FY 2017, we can see that the interest expenses have been reduced to half of the Interest expenses incurred during FY 2016, despite the increase in operations of the Company. This shows the effective wealth management of the Company by incurring the lower finance costs.

6. Other Relevant Items:

a. Research and Development expenditure:

From the above Income Statement, we can see the increasing research and development expenses, which depicts the interest of the Company in venturing into the new markets and innovating ways of production. The Company is increasing the expenditure being incurred on the R&D, with a view to contirbute to the innovation and modern techniques in the production methods of the Company.

b. Provision for Tax

Despite the Increase in profit of the Company over the years, there is a decrease in provision for tax of the Company, which shows the effective tax management of the Company.