Structure Ratios of Profit and Loss Account – Source of Information for Performance Analysis

Abstract

The Profit and Loss Account is by definition the main source of information for studying the financial performance of the companies. Financial ratios describe the relationship between financial indicators, in general between a result and an effort for the company, in order to offer an image of the financial profitability, if we use the Profit and Loss account or financial position and an image of financial position if we use the Balance Sheet. The structure ratios of the Profit and Loss account have the capability to show in ratios companies’ income and expenses, comparing the different positions of the Profit and Loss account . If this analysis is made in dynamics, in a few years, we can obtain specific information on companies’ performance in using their assets in order to obtain profit.Our case study performed in dynamics during eight years (2006-2013), based on real data from the Romania's furniture industry, on a large enterprise with more than 700 employees, reveal that the main expenses of the enterprise are with the cost of employees and with the raw material and materials. Also, using the Pearson correlations coefficient we could find a direct and strong relationship between the net income of the enterprise and the cost of the employees.