Income statement in Morocco : what you need to know

If you are looking for more information regarding the income statment in Morocco. This blog post will answer your questions as it will review all aspects of this essential financial statement.

Indeed, this financial statement is essential for every business person. It is a framework that groups together all the company's income and expenses and allows you to deduce a result for a given accounting period.

If you plan to create a company, especially in Morocco, you must know this specific and essential financial statement.

But what are the different parts of the income statement? How does the income statement illustrate the company's performance? What are the main elements of the income statement? We will explain everything in this article.

 

 

I. What is an income statement, and what does it illustrate?

 

Included in the company's financial statements along with the balance sheet, the cash flow statement, the income statement is a snapshot of the revenues and resources and all the costs and expenses of a company's activity in a defined period.

A profit and loss statement is an essential document for any manager wishing to manage his business. The income statement is also a necessary element for drawing up the company's balance sheet, a mandatory document.

In detail, as we have already seen in the article devoted to the balance sheet, as far as financial expenses are concerned, we find operating expenses of all kinds (supplies or subcontracting, various purchases of supplies), personnel, external fees (i.e., rent and insurance), taxes and exceptional financial expenses.

They, therefore, summarize everything that the company spends in a general way.

As far as income is concerned, it ranges from operating income, i.e., sales, to financial items including interest on loans, to exceptional items such as insurance reimbursements or sales of fixed assets.

Thus, the net result of the accounting period is the difference between the company's income and expenses over a given period.

If the revenues exceed the expenses, the result is a profit.

If not, it is a deficit.

Although the income statement is different from other similar barometers, as they do not present the same financial analysis from the same point of view, they have practically the same utility. They can be used by third parties to ascertain the solvency and economic situation of a given company.

By consulting the income statement of his company, a manager will be able to see the financial result and the exceptional result of his company over a given period. The financial expenses of the company will also appear in the income statement of the company.

 

 

II. What are the different parts of the income statement?

 

a. Different parts

The income statement is divided into three categories: extraordinary, financial and operating expenses, and income.

Operating expenses include changes in inventories, other costs relating to rental, maintenance, repair, miscellaneous charges, and advertising.

Operating expenses also include purchasing goods, supplies, raw materials, personnel expenses, depreciation, and managing provisions.

Financial expenses generally include negative exchange rate differences, depreciation, financial provisions, and granted accounts and bank interest.

Extraordinary income consists of tax refunds and penalties received on the disposal of assets.

 

b. How to interpret the financial health of the company?

Several characteristics are to be taken into account to evaluate the financial health of a company.

First and foremost is the growth in turnover.

It is an important indicator that allows us to measure the evolution of a company's activity.

A growing turnover is synonymous with the acquisition of new markets.

However, the company manager must consider other elements because the evolution of a turnover can also increase the expenses and the debts.

Therefore, other elements, such as profit growth, must be taken into account for a complete analysis of the financial health of companies.

Indeed, a significant increase in turnover is a good sign for the financial health of the company. Still, it is even better if the dynamics are accompanied by an ability to generate cash.

It also shows that expenses are falling. The measurement of growth is not to be neglected since it allows to know if the company is making money and if its management is healthy.

In addition to these indicators, although very relevant, the company manager must add another barometer to better synthesize all the elements in the income statement, namely profitability, which is a significant factor in the company's health.

Profitability is a significant factor in the health of a company. It is calculated from the ratio between the company's sales and profits.

It decreases if the increase in profit is slower than the increase in sales.

Therefore, it is essential to have on one's dashboard the data relating to the profitability of one's company, taking care to compare them with those of other companies belonging to the same sector of activity.

A company can generate income while its management remains perfectible.

 

 

 

III. How to read an income statement

 

With the previous elements, you will be able to detect all the secrets of an income statement.

Reading a profit and loss statement is a helpful exercise for a company director and other managers. A good reading of the profit and loss statement makes it possible to determine where its resources go and identify how wealth is distributed.

Moreover, this is the priority of accountants in the context of a company takeover.

Indeed, the profit and loss account is essential in measuring the potential buyer, mainly since it provides information on the operating result and the turnover.

From an economic point of view, understanding certain essential elements should only be sufficient for a good reading of the income statement. These include turnover, which gives an overview of the size and volume of the company's activity, the gross margin, which provides information on the activity's profitability, and the net result, which defines the profit or deficit.

It is also necessary to pay attention to the operating result, which measures the result linked to the current activity of the company as well as the structural changes which are relative to the fixed charges necessary to the activity of the company, without forgetting the self-financing capacity which gives a more or less precise idea on the cash flow generated by the activity.

Suppose you still have difficulty reading your income statement despite all these tips. In that case, we suggest that you contact a chartered accountant who can help you with the strategic management of your finances.

 

How does the income statement illustrate the company's performance?

The income statement represents the company's activity during the fiscal year and is the ideal barometer to measure a company's performance. Indeed, it measures the ratio between profit and loss by tracing the revenues and expenses of the fiscal year to produce a result. A profit and loss statement is a necessary tool for any company manager wishing to manage his company with more precision.

As a reminder, the income statement comprises the financial result, the exceptional result, the accounting result, and the operating result.

A range of indicators that can inform you about the performance of a company over a given period, in other words, the accounting period.

Called the economic document or summary statement, it allows you to measure whether the company has achieved its objectives or not in terms of loss or profit.

The company's result, whether it is a profit or a loss, will allow the company's balance sheet to be established.

 

 

IV. What is the difference between operating income, net income, and cash flow?

 

Many people confuse operating income, net income, and cash flow.

However, there are fundamental differences between these three elements that are important to recognize.

Indeed, while the income statement focuses only on the past accounting year, unlike the balance sheet, which summarizes a company's assets and its changes since its creation, the cash flow excludes depreciation or provisions.

As for the net result, one of the most important financial indicators for a company insofar as it allows the calculation of the wealth created by a company, it designates the difference between the income and expenses of a company over a given accounting period.

 

Conclusion

 

Like the balance sheet, the income statement is an essential barometer for measuring a company's performance.

An indispensable tool for managers, it provides partners, customers, or even associates with information that can convince them of the health of an organization.

It is therefore vital for any manager to know how to read the summary report of his company's activities either to improve the management of his company or to have a global vision of the positioning of his company in a competitive environment or simply to know the result of the exercise of his company over a given period.

However, you can always call on the services of a reliable chartered accountant to help you read your income statement.