Introduction To Finance (Online) 05.07.231688734490954

Introduction to Finance for Executive Assistants
Adam Fidler Alvarez & Marsal LLP

Adam Fidler Academy Online: 5 July 2023
Copyright notice
The slides and content are the copyright of Adept Executive
Consulting Ltd. You are welcome to use them for your own
personal use, or inside your organisation, but please do not
share the slides with any external parties.
© Adept Executive Consulting Ltd/Adam Fidler Academy, 2023
(c) Adam Fidler Academy 2023

Introduction to Finance for EAs
• Housekeeping
• Timings for today: 09:30-12:30 hrs,
with a couple of breaks
• Break-out groups for discussion
• You may need a calculator!
This Unit is:

Very practical
Requires you to think about how you might apply this
learning to your place of work
Requires you to think about the business cycle, how
a company raises money, financial statements (such
as balance sheet, and profit and loss), how to set
budgets and control costs in a business.
Today’s learning objectives
At the end this online seminar, you will:
• Understand the types of investment used by businesses.
• Understand how to use financial statements – such as
balance sheet, profit and loss, cash flow statement – and
interpret those statements.
• Understand how budgets are used to plan and control a
business.
• Know more about the factors to be considered when
writing a business plan and producing budgets.
• Know the basic concepts and jargon you may come
across when supporting financial managers or financial
data.

RECOMMENDED BOOK
Mason, R (2015), Understanding and Interpreting Accounts in
a Week, Croydon: John Murray Learning

The Business Cycle
Peak
Peak
Expansion Expansion
Recession
Depression / Recovery
Down Turn
Trough /
Recession
The Business Cycle
• Is a permanent feature of the economic environment for firms.
• The effects in the business cycle vary from industry to industry.
• Firms selling income elastic goods, such as designer clothes
and foreign holidays (where demand is sensitive to changes in
income) may find that sales rise in a boom but fall during
recession.
• Businesses selling staple products (or inelastic goods) such as
food items, where demand is income inelastic, may be
relatively uneffected by the business cycle.
• The business cycle may provoke only short-term responses in
many firms because its effects are relatively short-lived.
Booms and slumps do not last forever and businesses can
take actions to see themselves through difficult trading periods.

How do businesses work
knowing the Business
Cycle?
• During boom – increase prices to restrict demand and
increase profits.
• During recession – lay-offs may occur, or short-time
working (zero hour’s contracts).
• Well-managed firms try and predict the onset of a boom or
slump and take appropriate action in advance.
• Short-term responses may be all that are required if
governments are successful in eradicating the more
extreme effects of the business cycle.
• A deep and lasting recession may persuade a business to
close factories or relocate elsewhere.

How might firms producing these items
be affected by the Business Cycle?
Elastic?
Inelastic (or staple goods)?
Stages of the Business Cycle –
Exercise. Match up the
description with the stage…
Boom Consumer spending starts to
increase again, expansion of
markets, products and services
Downturn High levels of consumer spending,
confidence, investment, rising
prices and costs, high employment
Recession Falling levels of consumer
spending, low confidence, reduced
profits, rising unemployment,
restructuring, cut-backs
Recovery Continued downturn in economic

activity, low demand, some firms
may go out of business

The need for finance
• What do firms need
finance for?

Income – money ‘in’
• Capital income – money invested by the owners or other
investors that is used to set the business up, and buy things
that will stay in the business for a medium-to-long period of
time (eg equipment). à These are called fixed assets.
• Revenue income – money coming in from the firm performing
its day-to-day operations – ie selling good or services.

CREATE THE TWO COLUMNS
IN YOUR NOTEBOOK
INCOME
CAPITAL INCOME REVENUE INCOME
à Use your own notepad

Fill in on your
Income notebook
Decide whether the items below are CAPITAL INCOME or

REVENUE INCOME
Vehicles Cash sales
Premises Rent received
Sales Loans
Mortgages Commission received
Interest received Shares
Discount received Owner’s capital

ANSWERS - INCOME
INCOME
CAPITAL INCOME REVENUE INCOME
Loans Sales
Mortgages Rent received
Shares Commission received
Owner’s capital Interest received
Vehicles Discounts received
Premises Cash sales

What is the money for? (1)
• Assets – the need for start-up finance
Before a firm can begin trading, it needs start-up finance to buy
certain essential items. A sole trader, for instance, needs
premises for their shop, some equipment such as a till, and
possibly a small van, as well as stock to sell.
à These items are called assets and can be divided as follows:
à Fixed assets – the tools with which the business works.
They are items that may cost a substantial amount but will
last for a reasonable time, such as the van, premises, shop
fittings and equipment. Can be called non-current assets.
à Current assets – these are items that will be used from
day to day; their value will change. For instance: stock,
cash in hand, cash in the bank.

What is the money for? (2)
• Debtors – if the trader offers credit (allows customers to buy
now and pay later) a further current asset, debtors will appear.
Debtors are an asset because the value for the goods sold
legally belong to the trader, but for the time being this money
remains in the customer’s possession. A settlement of 30 days
is common.
• Running costs – when the business is up and running, it will
need to pay various running costs, such as heat, light,
broadband, wages. Although the business spends money on
these items, they are not called assets. This is because they
represent services which are continually used up, rather than
value owned by the business.

Expenditure
• Expenditure on fixed assets is called capital expenditure.
• Expenditure on short-term items such as expenses is called
revenue expenditure.
• Often in Finance Meetings people say with regard to costs or
outgoings: “Capital or Revenue?” and they mean “Is it capital
expenditure, or revenue expenditure?”.
• Think of revenue expenditure as day-to-day running
costs/expenses you would need to run your home (eg gas,
electric, internet etc).

CREATE THE TWO COLUMNS
IN YOUR NOTEBOOK
EXPENITURE
CAPITAL EXPENDITURE REVENUE EXPENITURE
à Or, handout provided

Fill in on your
Expenditure notebook
Decide whether the items below are CAPITAL EXPENDITURE

or REVENUE EXPENDITURE
Capital items Marketing
Non-current assets (fixed assets) Interest paid to bank
Trademarks Rent
Brand name Rates
Heat and light Water
Insurance Admin
Salaries Wages

ANSWERS - EXPENDITURE
EXPENDITURE
CAPITAL EXPENDITURE REVENUE EXPENITURE
Capital items Rent, Rates
Non-current assets Water
Trademarks Insurance
Brand name Admin
Heating, Lighting
Salaries
Wages
Marketing
Interest paid to the Bank

Raising capital
How do firms
raise capital, or
get money?
Where does it
come from?
What could a firm
do if it needs an
injection of
money?

Issuing shares
Crowdfunding Bank Loan
Government
Banks
Grants
Investment of Raising Sale of Assets

own savings
Capital

Sources of finance
In general terms, sources of finance fall into two main categories:
à Finance provided by the owners or directors of the business,
known as capital.
à Finance borrowed from external sources, such as the Bank,
called liabilities.

How much money will
a business need?
Consider two firms below.
• A business will not only need money to buy assets, it will also need funds
available for day-to-day expenses.
• This short-term finance is called working capital. Without it, wages cannot
be paid, suppliers cannot be paid and the rent will go into arrears.
• Even profitable firms can fail without enough working capital or cash in
the bank.
Cash
“Cash is the lifeblood of your business.”
• Managing cash badly is one of the main reasons for business’

failure.
• The main point is that a business needs to plan ahead for cash
requirements so that the money is there when it is needed.
• Many businesses fail to ‘save for a rainy day’.
• An overdraft may be possible, but you can only borrow so
much!

Cashflow forecast
• The cashflow forecast, or cash budget, is an estimate of the
cash position of the business over the forthcoming period.
• It simply compares estimated income with estimated
expenditure on a month-by-month basis for the next 6 or 12
month period.
• The reasons for drawing up a cashflow forecast are:
• Evidence when seeking finance
• As a planning tool
• To monitor actual performance with planned/predicted
performance

Cashflow forecast
à Worked example
Worked example
Cashflow forecast of: Ben Nevis & Son Ltd From: 1 January 2019 to 30 June 2019
Figures rounded to Jan Feb Mar Apr May June Total

£s Budget Budget Budget Budget Budget Budget Budget
RECEIPTS:
Cash sales 1,000 1,000 1,000 2,000 2,000 2,000 9,000
New capital 8,000 8,000
Total receipts (A) 9,000 1,000 1,000 2,000 2,000 2,000 17,000
PAYMENTS:
Cash purchases 500 500 500 1,000 1,000 1,000 4,500
Directors’ salaries 600 600 600 600 600 600 3,600
Wages/salaries 400 400 400 400 400 400 2,400
Vehicle running 200 200 200 200 200 200 1,200
costs
Capital items 3,000 3,000
Rent/Rates 200 200 200 200 200 200 1,200
Light/Heat 180 180 360
Telephone/Post 100 100 200
Insurance 300 300
Total payments (B) 5,200 1,900 2,180 2,400 2,400 2,680 16,760
Net Cashflow (A-B) 3,800 (900) (1,180) (400) (400) (680) 240
add Opening Bank 0 3,800 2,900 1,720 1,320 920 0

Balance
Closing Bank 3,800 2,900 1,720 1,320 920 240 240
Balance

Cashflow example (2)
Fill in the
Cashflow forecast - Finchley & Webb Ltd
cashflow using
Week 1 - Week 2 - Week 3 - Week 4 - the following
Budget Budget Budget Budget information:
Receipts:
Sales
Starting budget
• Sales are
Total receipts (A): £5,000 per
week
Payments: • There was a
Salaries
Total payments (B):
starting
budget of
Net Cashflow (A-B) £10,000 in
add opening balance Week 1.
Closing Bank Balance
• Salaries are
just £3,000
per month.

Cashflow example (2) – answers
Cashflow forecast - Finchley & Webb Ltd
Fill in the
Week 1 - Week 2 - Week 3 - Week 4 -
Budget Budget Budget Budget cashflow using
Receipts: the following
Sales 5,000 5,000 5,000 5,000 information:
Starting budget 10,000 0 0 0
Total receipts (A): 15,000 5,000 5,000 5,000
• Sales are
Payments: £5,000 per
Salaries 3,000 3,000 3,000 3,000 week
Total payments (B): 3,000 3,000 3,000 3,000
• There was a
Net Cashflow (A-B) 12,000 2,000 2,000 2,000 starting
add opening balance 0 12,000 14,000 16,000 budget of
£10,000 in
Closing Bank Balance 12,000 14,000 16,000 18,000
Week 1.
• Salaries are
just £3,000
per month.

Budgeting within your
business

à Break out and
BUDGETS discuss
The need for financial controls within the organisation.
Why budget?
Think about budgeting at home and in your personal life.
Why have a budget?
Thoughts?

How budgets are used to plan
and control a business
• Creates a focus for the direction of the business
• Links to a strategic plan; operational and strategic plans
may contain financial targets
• Financial targets may also be used in KPIs, or even SLAs
• Helps with decision making – eg ‘Do we spend or not?”
• Shows company growth or decline
• Gives confidence to investors, shareholders – eg Annual
Report and Accounts
• Helps make decisions about investment opportunities

How does a business
control costs?
• Regular financial reporting – eg at a weekly Team Meeting or
Finance Committee
• Reviews budgets within departments
• Renegotiating contracts with suppliers
• Asking for customer/client feedback about prices
• Cost-cutting – eg restructuring, reducing day-to-day spend
• Using technology to save time and money (eg Apps)
• Remote working – working from home to save on office space
(capital expenditure)
• Re-using resources – old furniture, stationery

Methods of budgeting
Top-down – executive leaders set the budget based on company objectives,

and then push down the budgets to departmental heads who communicate
them.
Bottom-up – refers to the flow of information from the 'floor level' employees in
each department up towards senior management. Departments will decide their
own forecasted expenses, and then request an appropriate budget.
Target setting – starts by setting an expectation, for example, to achieve X
number of sales, then a budget is drawn up to deliver on that.
Incremental - the process of creating a new budget by making minor changes
to the current budget. An incremental budget uses the current year's budget as
a baseline, which finance teams then adjust by incremental amounts.
Zero base – is the process that allocates funding based on program efficiency
and necessity rather than budget history. As opposed to traditional budgeting,
no item is automatically included in the next budget. Every expense must be
justified.
How does your firm budget?
Examples...
Regular Financial Reporting
Managers within organisations have regular, weekly or monthly, meetings to
discuss costs, this includes being able to compare finance figures to the current
budget or forecast.
This enables them to monitor data in a timely fashion, including sales figures,
EBITDA (earnings before interest, taxes, depreciation, and amortisation -
used as an indicator of the overall profitability of a business), invoicing and
margins - and enables them to identify early any potential issues that need to be
rectified quickly.
Capital Expenditure control (CAPEX)

A CAPEX Committee Team meets on a monthly basis to review requests for
purchasing of assets which are expected to provide benefits over a long period of
time i.e. vehicles, furniture, machinery and computer equipment.
A submission provided to the meeting helps to determine if the return on
investment – weighed against both the costs and risks – warrants moving forward
with the capital expense.

More financial
statements
• Cash flow statements –
ALREADY COVERED
• Profit and Loss Account –
‘Statement of
Comprehensive Income’
or ‘Income Statement’
• Balance sheets –
‘Statement of Financial
Position’

Profit and Loss Account or
Statement of Comprehensive
Income / Income Statement
• Gives accurate calculation showing how much profit or
loss the business has made.
• It records sales, cost and profit over a time period (usually
1 year).

Calculating gross profit
The first part of the Profit and Loss Account is made up of three
components:
1. Sales revenue – money coming into the business from
providing a trade, eg selling goods, selling a service or
manufacturing something.
2. Cost of goods sold – includes costs directly linked to
providing that trade, eg cost of purchasing raw materials. Not
necessarily the same as purchases, as most businesses will not
sell all that they buy in a period. There will be opening stock and
closing stock. See next slide.
3. Gross profit (or operating profit / EBIT*) – the amount of
money left in surplus after the cost of goods sold has been
deducted from the sales turnover. This is not, however, the
business’ final profit as there are still other expenses to deduct.
* Earnings before interest and taxes.

Gross profit example
I sell a jumper for £20.00 Sales revenue
The jumper cost me £5.00 Cost of good sold
£15.00 is left Gross profit
BUT
We still need to deduct other expenses such as my wages,

packaging, heating/light etc.
And with the cost of good sold there may be stock left over if
I paid for 2 jumpers (stock) but only sold 1.

Cost of good sold
This can cause confusion. Remember, we may have opening
stock/opening inventories, and closing stock/closing inventories:
But I had
one ball of I buy 3 balls of Is the cost wool for the
wool to wool to knit a scarf 3 balls?
start with scarf
And one
ball of wool
left over at
the end

Cost of good sold
• Therefore, the cost of good sold is:
Opening stock + purchases – closing stock
1 ball of wool + 3 balls of wool – 1 ball of wool = 3 balls of wool.

It ‘cost’ 3 balls of wool.

Gross profit
• So, gross profit is really the amount of money left over or the
surplus after the cost of good sold has been deducted from the
sales turnover.
• However, there will be other costs to deduct later on.
• The calculation for gross profit is:
Sales turnover – cost of good sold

Part 1 of Profit and Loss
Account – example (1)
Wool Shop Ltd – Profit and Loss Account for Year Ended
30 April 2015
£ £
Sales 600
Less cost of goods sold:
Opening stock 200
+ Purchases 100
- Less closing stock 50
= 250
Gross profit (EBIT) 350

Part 1 of Profit and Loss
Account – example (2) à What are the
figures?
Cutz Hair Salon– Profit and Loss Account for Year Ended
30 April 2019
£ £
Sales 3000
Opening stock 250
+ Purchases 400
= 610

Profit
• Overall profit is the money after all other expenses have been
deducted from gross profit and any other revenue or income
has been added.
• Revenue income is non-capital income from sources other
than sales, such as discounts, interest on bank balances.
• Final profit, or net profit then is:
Gross profit (or EBIT) – expenses + any other

revenue income

Profit and Loss Account – example 2
Wool Shop Ltd – Profit and Loss Account for Year Ended 30 April 2015
£ £
Sales 600
Opening stock 200
+ Purchases 100
= 250
Less expenses:
Rent and rates 100
Wages 50
Depreciation 10
= Total expenses 160
+ Revenue income 0
Net profit before tax 190
à What are the
Profit and Loss Account – example 2
figures?
Cutz Hair Salon – Profit and Loss Account for Year Ended 30 April 2019
£ £
Sales 3000
Opening stock 250
+ Purchases 400
= 610
Gross profit 2390
Less expenses:
Rent and rates 150
Wages 60
Depreciation 20
= Total expenses 230
+ Revenue income + 120
Net profit before tax 2280
Sam Saddler Trading and Profit and Loss Account

Expenses
Businesses suffer three types of expenses:
Revenue expenses – These are on the profit and loss account.
These are the running costs which give short-term benefit but
which are used up in the trading period (eg heat, light, phone,
petrol).
Capital expenses – These are larger items. In Sam Saddler’s
accounts they were motor van and shop fittings. They will last
longer and are classed as fixed assets. They are things that the
business still owns and will appear on the balance sheet.
Private expenses – Drawings represent money taken out by the
owner or director, such as Sam Saddler. Drawings are only
shown on the balance sheet.

The Balance Sheet
• Sometimes now known as a ‘statement of financial position’.
• It’s a snapshot of a business’ net worth at a particular moment
in time, normally the end of the financial year.
• It is a summary of everything that the business owns (its
assets) and owes (its liabilities).
• A Balance Sheet, therefore, states the value of the business.
+ Own - Owe

Balance Sheet - Example
Balance Sheet of Syd Southwark, trading as ‘South East One’ as at
31 December 2019
Fixed assets 50,000 Capital 50,000

Premises 10,000
Where
Vehicles 5,000 the
65,000 Long-term liabilities: 25,000 money
came
Bank Loan
from
Current assets: Current liabilities: 5,000
Stock 7,000 Creditors
Debtors*** 2,000
Bank 5,500
Cash 500
15,000 _____
What the business 80,000 80,000

owns – where the
money is *** Debtors are an asset because the value for the goods sold legally
belong to the trader, but for the time being this money remains in the
(c) Adam Fidler Academy 2018 customer’s possession (they haven’t paid yet).
Why the balance sheet balances!
The balance sheet totals will always agree and ‘balance’. The
reason is that we are setting out the money of the business in two
ways:
What Syd What Syd
owns owes
50,000
Fixed assets 65,000 Capital
25,000 Long-term liabilities

Current assets 15,000
5,000 Current liabilities
Assets Liabilities + Capital

£80,000 £80,000
Balance Sheet –
example
• If a business borrows £500,000 to purchase vehicles, the loan
will appear as a liability as it is now owed by the business to
the bank.
• However, at the same time, the business will have additional
assets that they own and that will be recorded on its balance
sheet as an asset. Thus the transaction will not cause the
balance sheet to become unbalanced.
• Alternatively, a business might sell a fixed asset to raise cash.
In this case, the business will have fixed assets of a lower
value, but its holding of cash will rise by the same amount.
• In these instances, the value of total assets is unchanged and
the balance sheet still balances.

Reading and interpreting
balance sheets
• Professional managers, potential investors and accountants
can gain a great deal of information about a company from
reading its balance sheet.
• It’s possible to make some assessment of the short-term
financial position of the business as well as the longer-term
strategy from reading the balance sheet.

Balance sheets
(a) The short-term
• This entails examining the business’ ability to pay its bills over
the next 12 months.
• The balance sheet sets out a business’ short-term debts
(creditors due within one year, or liabilities) and also the
current assets it has available to pay those creditors.
• The net position of these two factors is recorded as net current
assets or working capital.
• If a business has more current assets than current liabilities it
has a positive figure for working capital and should be able to
pay its debts in the short-term.
• If current liabilities exceed current assets, this may cause cash
problems or liquidity issues.

Balance sheets
(b) The long-term
• This can be examined in a number of ways:
• Movement of fixed assets: a sudden increase in a fixed
asset may indicate a rapidly growing company, which may
mean the company’s financial performance might improve.
• Considering how a business has raised its capital may also
be valuable. It is risky for a business to borrow too much.
A company raising more through borrowing than through
shares might be vulnerable to rises in interest rates, for
instance.
• Reserves provide an indication of the profits earned by the
business. A rapid increase in reserves is likely to reflect a
healthy position with regard to reserves.

Summary: The INS and OUTS
of a company’s money
Money Money
IN OUT
• Capital income • Assets

• Revenue income • Fixed assets
Used for • Current assets
• Non-current assets
• Expenditure
• Capital (fixed costs)
• Revenue (running costs)
• Debtors
• Running costs – eg wages

REVIEW – Financial key terms
Test 1 • Match the descriptors to the words for the financial
terminology we have learnt.
Surplus achieved when total revenue (income) from sales is higher
than the total cost of a business.
Profit
Sales revenue minus cost of good sold (the cost of the actual
materials used to produce the quantity of good sold).
Gross profit /
EBIT
Any item of value owned by an individual or firm.
Asset
Shortfall suffered when total revenue from sales is lower than the
cost of a business. Loss
Items of value owned by the business that are likely to stay in the
business for more than one year – for example, machinery. Also Fixed
known as non-current assets.
assets
Words to use:
ASSET PROFIT FIXED ASSETS GROSS PROFIT / EBIT LOSS

Gross profit minus other expenses, for example, rent and
advertising. Net profit
Quantity sold multiplied by the selling price.
Sales revenue
A financial document that shows the net worth of the business by
balancing its assets against its liabilities. It is often called a Statement
balance sheet. of financial
position
Assets bought from capital expenditure such as machinery and
vehicles that will stay in the business for more than one year. Capital
items
Measures a firm’s ability to meet short- term cash payments.
Liquidity
Words to use:
STATEMENT OF FINANCIAL POSITION CAPITAL ITEMS
LIQUIDITY NET PROFIT SALES REVENUE

When a firm is unable to meet short-term cash payments.

Insolvent
A document that shows the predicted flow of cash into and out
of a business over a given period of time, normally 12 months.
Cash flow
Shows the trading position of the business which is used to

calculate gross profit. It then takes into account all other Statement of
expenses to calculate the profit or loss for the year. Often comprehensive
known as a profit and loss account. income
Items owned by the business that change in value on a regular

basis, such as stock. Current
asset
Words to use:
CASH FLOW INSOLVENT CURRENT ASSET
STATEMENT OF COMPREHENSIVE INCOME

Five key drivers of
business acumen
Cash
Assets People Profit
Growth
(c) Adam Fidler Academy, 2017

www.adamfidler.academy
Thank you
Any questions?
My contact details are: adam@adamfidler.academy
Other online sessions:

Developing Soft Skills for EAs
Leadership and Management for EAs
Being Efficient (Part 1 of Being Efficient to Being Effective)
Being Effective (Part 2 of Being Efficient to Being Effective)

BIBLIOGRAPHY
Books:
• Lewis, R and Trevitt, R (1994), GNVQ Advanced Business,

Cheltenham: Stanley Thornes (Publishers) Ltd
• Surridge, M and Gillespie, A (2001), A2 Business Studies.
London: Hodder & Stoughton
• Harris, C et al (2016), BTEC National Business Student Book 1,
London: Pearson
• Mason, R (2015), Understanding and Interpreting Accounts In A
Week. London: Hodder Education.

Copyright notice
The slides and content are the copyright of Adept Executive
Consulting Ltd. You are welcome to use them for your own
personal use, or inside your organisation, but please do not
share the slides with any external parties.
© Adept Executive Consulting Ltd/Adam Fidler Academy, 2023

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Introduction to Finance for Executive Assistants

Adam Fidler Alvarez & Marsal LLP

© Adept Executive Consulting Ltd/Adam Fidler Academy, 2023

(c) Adam Fidler Academy 2023

This Unit is:

(c) Adam Fidler Academy 2018

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Recovery Continued downturn in economic

(c) Adam Fidler Academy 2018

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à Use your own notepad

(c) Adam Fidler Academy 2018

Decide whether the items below are CAPITAL INCOME or

(c) Adam Fidler Academy 2018

(c) Adam Fidler Academy 2018

(c) Adam Fidler Academy 2018

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à Or, handout provided

(c) Adam Fidler Academy 2018

Decide whether the items below are CAPITAL EXPENDITURE

(c) Adam Fidler Academy 2018

(c) Adam Fidler Academy 2018

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Crowdfunding Bank Loan

Investment of Raising Sale of Assets

(c) Adam Fidler Academy 2018

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• Managing cash badly is one of the main reasons for business’

(c) Adam Fidler Academy 2018

(c) Adam Fidler Academy 2018

Figures rounded to Jan Feb Mar Apr May June Total

add Opening Bank 0 3,800 2,900 1,720 1,320 920 0

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The need for financial controls within the organisation.

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Top-down – executive leaders set the budget based on company objectives,

Capital Expenditure control (CAPEX)

(c) Adam Fidler Academy 2018

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* Earnings before interest and taxes.

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We still need to deduct other expenses such as my wages,

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Opening stock + purchases – closing stock

1 ball of wool + 3 balls of wool – 1 ball of wool = 3 balls of wool.

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Sales turnover – cost of good sold

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Gross profit (or EBIT) – expenses + any other