Comparing profits and other figures from accounts
One thing really annoys me about how the media reports company performance – they only ever give % increases or decreases in sales or profit typically.
If you have ever studied accounting you probably learned about ratios analysis, and how just looking at absolute numbers ( like sales or profit ) can give a false picture. Here’s a recent example from the Irish Times to illustrate what I mean.
According to the Irish Times (see here :
“Irish-owned book and stationery retailer Eason & Son has recorded a net profit after tax of €2.3 million in its financial year to January 2014, compared with €2.6 million the previous year. Eason Group revenues, however, were down 7.1 per cent to €227.4 million, in what the company called a “challenging year”.”
All the above is true, but if we do a quick calculation, profit as a % of sales ( profit margin ) is pretty much the same from one year to another. So despite a 7% drop in sales, costs must also have been well managed to maintain a stable profit margin. I appreciate the media try to keep these reports simple for the general public, but a little more depth would be very useful.