Financial Performance Report: 5 Steps to Correct Preparation

Table of Contents:

• Understanding the Income Statement
• Classifying Revenue in the Income Statement
• Classifying Expenses in the Financial Statement
• Types of Profit in the Income Statement
• Income Statement: Key Aspects
• Completing the Income Statement Line Items: A Practical Guide
• Income Statement Summary
• How to Deepen Your Knowledge of Accounting Statements

Understanding the Income Statement

The income statement (IPS) is an important tool that reflects a company's financial position for a specific period. This document includes detailed information about revenues, expenses, and the resulting profit or loss, based on accounting data, which must be maintained on an ongoing basis. The IPS allows you to analyze the financial performance of a business, make informed decisions, and plan for further development. Proper preparation and analysis of the income statement contributes to improved financial management and increased company transparency.

For a thorough understanding of accounting, we strongly recommend reading our article on the basics of accounting. In it, you will find useful information that will help you better understand this area and master key aspects of accounting.

All revenues and expenses in public financial statements (PFS) are divided into three key groups based on the type of transaction. These groups include operating, financing, and investment income and expenses. Operating income and expenses are related to the organization's core business, including sales of goods and services. Financing transactions cover income and expenses arising from financial instruments and loans. Investment income and expenses relate to transactions with assets and investments aimed at expanding or improving the business. Correct classification of income and expenses allows for a more accurate analysis of an organization's financial position and the making of informed management decisions.

• Operating income is income and expenses related to the company's primary activities.
• Non-operating income is income and expenses arising from secondary activities, such as investing.
• Financial income is income and expenses from financial transactions, including loan payments and interest income from deposits.

The Financial Performance Statement (FPS) is prepared on an accrual basis, which implies accounting for income and expenses as they arise, rather than at the time of actual cash transactions. This method can lead to a discrepancy between the profit reflected in the statement and the actual cash flow. This is important to consider when analyzing a company's financial position, as such a difference can be misleading regarding the liquidity and financial stability of the business. It is important to carefully interpret the data in the income statement in order to adequately assess financial performance and plan further actions.

If a company sells goods with deferred payment, the profit will be recognized in the income statement even if the money has not yet been received. At the same time, a situation may arise where a company purchases materials but does not pay for them. This demonstrates the importance of accounting for revenue and liabilities in financial statements, which allows for a more accurate assessment of the company's financial position.

Comparing the income statement with the cash flow statement is key to analyzing a company's financial position. In the next article, we will examine in detail the methodology for such a comparison and its importance. If significant differences are found between these statements, it is important to analyze and identify the reasons for these discrepancies in order to make informed management decisions.

In the next section, we will examine in detail the different types of income, expenses, and profit that should be recognized in the income statement. We will also discuss the process of completing this report to ensure an accurate representation of the company's financial health.

Classification of Revenue in the Income Statement

The income statement is a key document for assessing a company's financial health. It analyzes revenues and expenses, which are classified into three main categories: operating, non-operating, and financial. Operating revenues and expenses are related to the company's core business, reflecting its efficiency and profitability. Non-operating items include revenues and expenses unrelated to core business, such as asset sales or investment losses. Financial revenues and expenses include interest on loans and investment income. Understanding these categories helps stakeholders make informed decisions based on an analysis of a company's financial performance.

Revenue is a key metric that determines a company's income and reflects the effectiveness of its core business. This important financial metric attracts the attention of not only owners but also investors, creditors, and analysts, as it serves as an indicator of a business's financial stability and growth potential. An increase in revenue may indicate an expanding customer base, improved product or service quality, and a successful marketing strategy. Therefore, revenue analysis is essential for assessing a company's investment attractiveness and financial health.

Income from participation in other organizations is a significant part of a company's financial structure. This category includes dividends received from investments in authorized capital and shares of various companies. This income plays a key role in the overall profitability of a business, providing additional cash flows and contributing to sustainable development. Investing in other organizations can not only increase profitability but also diversify risks, making this source of income particularly important for strategic planning and the long-term success of a company.

Interest income is an important category of financial revenue. It includes income received from financial transactions, such as interest accrued on loans issued to legal entities and individuals, as well as interest on bank deposits. Effective interest income management plays a key role in financial planning and allows for the optimization of investments and savings. Proper resource allocation and interest rate monitoring will help maximize profitability and minimize risk.

Other income is a category that includes all types of income that are not related to a company's core business. This includes proceeds from the sale of fixed assets, foreign exchange gains, as well as donated property and goods identified during inventory. While this income can significantly impact a company's overall profit, its sources are often volatile and can vary from period to period. Therefore, it is important to consider this income when preparing financial statements and analyzing a business's financial condition.

Understanding the different types of income and their structure in the income statement is key to assessing a company's financial condition and future prospects. This knowledge helps stakeholders, including investors and analysts, form a more accurate picture of the stability and profitability of the business. Correct interpretation of income allows you to identify the main sources of profit and understand how they affect the overall financial situation, which in turn contributes to more informed investment decisions.

Classification of expenses in the financial statement

In financial statements, expenses are of the same importance as income. Expense classification is based on the types of company activities, which facilitates a more detailed analysis of financial results. In this article, we will discuss the key expense categories that need to be taken into account when preparing financial statements. Understanding these expenses will help not only in the formation of reports but also in cost optimization, which is an important aspect for successful business management.

• Cost. These are expenses directly related to the company's core business, such as the cost of producing goods or providing services. Tracking cost is critical to determining the profitability of a business.
• Selling expenses. These costs are aimed at promoting products or services on the market. These include expenses on advertising, marketing, and sales, which affects the overall competitiveness of the company.
• Administrative expenses. These cover management costs, such as executive salaries, office rent, and other administrative expenses. Effective management of these expenses helps optimize the company's operations.
• Interest expenses. These include interest paid on loans and borrowings. It is important to consider these expenses when analyzing a company's financial stability, as they can significantly affect net profit.
• Other expenses. This category includes costs that are not related to core business. For example, these may include depreciation of fixed assets, foreign exchange losses, or donated property.

Types of Profit in the Income Statement

A company's income statement offers a detailed analysis of the four main types of profit, which serve as important indicators of its financial health. These types of profit allow us to evaluate the company's performance, identify its strengths and weaknesses, and forecast further development. Analysis of financial results contributes to a deeper understanding of business processes and helps make informed decisions to improve financial stability.

• Gross Profit. This intermediate financial indicator demonstrates sales income, which is calculated as the difference between revenue and the cost of goods or services sold. Gross profit is an important indicator for analyzing operational efficiency.
• Sales Profit. This indicator reflects the financial result of the company's core business. It does not take into account other income and expenses, which allows for a more accurate assessment of the effectiveness of core business management.
• Profit Before Tax. Also known as accounting profit, this indicator includes not only sales profit, but also income from participation in other organizations, as well as interest and additional income and expenses. Using this indicator, you can evaluate the overall efficiency of business activities, and if the share of other income exceeds 50%, this may signal the need to reconsider the core business strategy.
• Net Profit. This key financial result reflects the company's profit after paying all taxes and mandatory payments, including fines and penalties. Net profit is the final result that demonstrates the real financial solvency of the company and its ability to generate income for shareholders.

Financial Performance Report: Key Aspects

The financial performance report (FPR) is a key document reflecting the financial condition of the company for a certain period. This report includes data on income, expenses, profits and losses, which allows you to evaluate the performance of the business and its financial stability. The FPR helps stakeholders, including investors and creditors, make informed decisions. Proper preparation and analysis of the financial performance report play an important role in strategic planning and company management.

Since 2019, all companies are required to submit financial statements only in electronic format. This innovation significantly simplifies not only the process of filing documents, but also the analysis of financial data. Transitioning to electronic reporting improves organizational efficiency, reduces errors, and speeds up reporting processing. Furthermore, electronic reporting facilitates greater control and transparency in financial transactions. Therefore, compliance with electronic reporting requirements is becoming a crucial aspect of successful business management.

• Reporting period and date;
• Company information: OKPO, INN, OKVED, OKOPF, OKFS codes;
• Unit of measurement: starting in 2019, all indicators are reported in thousands of rubles.

The table with indicators of the general financial result (OFR) for companies operating under general accounting contains five key columns. It presents important data that helps analyze the financial activities and performance of the business. These indicators allow you to evaluate income, expenses, profit, and other aspects critical for making informed management decisions. Companies can use this table to monitor their financial stability and plan further development.

• Report Explanation Number — used to indicate if a given indicator is explained in the notes to the financial statements.
• Indicator Name — all indicators in the form are discussed in more detail below.
• Row Code — specified in accordance with Appendix 4 to Order No. 66n of the Ministry of Finance of Russia.
• Indicator Value for the Current Reporting Period.
• Indicator Value for the Same Period Last Year — data is transferred from the OFR report for the previous year.

Organizations using simplified accounting have the option to choose between a full report form and an abbreviated version, which includes a limited number of indicators. This choice simplifies the accounting process and facilitates the presentation of financial information. The abbreviated form of the report is suitable for small businesses seeking to optimize their resources and focus on key financial indicators.

In the next section, we'll cover in detail the process of completing the lines of the financial performance report. This will help you confidently and correctly prepare this key financial document. We'll cover the main aspects and recommendations so you can easily and effectively manage your financial reports.

Completing the Lines of the Financial Performance Report: A Practical Guide

Now that we've covered the financial performance report template, let's take a closer look at the process of completing the lines containing the company's key financial performance indicators. This will help you better understand how to correctly reflect financial results, which is important for analyzing and evaluating business performance. Digging into the details of these lines will allow us to identify key trends and make informed conclusions about the company's financial health.

• {‘text’: ‘Revenue (line code - 2110): This line records income from core activities, including sales of goods, performance of work, and provision of services. This indicator is the credit turnover of sub-account 90-1 "Revenue", minus the debit turnover of sub-accounts 90-3 "VAT" and 90-4 "Excise taxes".’}
• {‘text’: ‘Cost of Sales (line code - 2120): This line takes into account all expenses related to core activities, such as production costs and the purchase of materials. This indicator represents the total debit turnover for sub-account 90-2 and corresponding accounts, excluding accounts 26 and 44.’}
• {‘text’: ‘Gross profit or loss (line code - 2100): this indicator is calculated as the difference between revenue and cost. If the result is negative, the loss is indicated in parentheses.’}
• {‘text’: ‘Commercial expenses (line code - 2210): this includes the costs of selling goods and services, reflected in the debit turnover of sub-account 90-2 and account 44. The value is also written in parentheses.’}
• {‘text’: ‘Management expenses (line code - 2220): these expenses relate to the management of the company and are shown in the debit turnover of sub-account 90-2 and account 26.’}
• {‘text’: ‘Profit or loss from sales (line code — 2200): calculated by subtracting selling and administrative expenses from gross profit. This indicator corresponds to the balance of account 99 - accounting for profit or loss from sales.’}
• {‘text’: ‘Income from participation in other organizations (line code - 2310): this includes dividends from investments in other companies, recorded in the credit of sub-account 91-1.’}
• {‘text’: ‘Interest receivable (line code - 2320): this is interest from loans and deposits, also recorded in the credit of sub-account 91-1.’}
• {‘text’: ‘Interest payable (line code - 2330): reflects interest, paid on loans, collecting data from the debit of sub-account 91-2.’}
• {‘text’: ‘Other income and expenses (codes 2340 and 2350): these lines take into account all other financial transactions passing through account 91, with expenses in parentheses.’}
• {‘text’: ‘Profit or loss before tax (line 2300): this figure is calculated by adding sales profit to participation income and subtracting interest payable and other expenses.’}
• {‘text’: ‘Current income tax (line code - 2410): Reflects the amount of tax assessed on the tax return, including taxes for special tax regimes.’}
• {‘text’: ‘Net Profit or Loss (line code - 2400): The final figure, which determines profit after taxes, is calculated by subtracting current tax and other items from profit before taxes.’}

Following the section with the financial performance report, there is a table with reference information, which contains additional indicators. This table provides a deeper understanding of the company's financial position and helps analyze key aspects of its activities.

• Result of revaluation of non-current assets (line 2510);
• Result of other transactions not included in net profit or loss (line 2520);
• Cumulative financial result of the period (line 2500) - if the indicators of lines 2510 and 2520 are equal to zero, the amounts of net profit and cumulative financial result will be the same;
• Basic and diluted earnings (loss) per share (lines 2900 and 2910).

Example of a completed form of the financial performance report of the KAMAZ group of companies for 2020. This document reflects the key financial indicators that allow you to analyze the company's performance, its income, expenses and profit. The report contains important information for investors, shareholders and other stakeholders, allowing them to assess the financial stability and development prospects of the KAMAZ group of companies in the current market conditions.

Financial Performance Report Summary

• The Financial Performance Report (FPR) is Form No. 2 of the mandatory financial statements, which provides detailed information on the company's income and expenses for a certain period. It also includes data on the profit or loss received, which makes it a key tool for analyzing the financial condition of a business.
• All legal entities registered in the Russian Federation are required to submit the FPR, including enterprises using a simplified accounting system. The deadline for submitting the report to the tax authorities is no later than March 31 of the year following the reporting period.
• In the FPR, income and expenses are classified by transaction types: operating, non-operating, and financial. This structure allows for a more accurate analysis of the company's sources of income and areas of expenses.
• The financial performance report highlights four key profit indicators: gross profit, profit on sales, profit before tax, and net profit. Each of these indicators plays an important role in assessing the financial stability and profitability of a business.

How to Deepen Your Knowledge of Accounting Statements

• A financial statement is a key form of accounting reporting, including documents such as the cash flow statement and balance sheet. In Skillbox Media, you will find many articles devoted to these important aspects.
• If you are taking your first steps in studying accounting, we recommend that you read our article "Accounting: Its Meaning, Structure, and Organization." This will give you a solid foundation for further training.
• To master bookkeeping skills, working with the 1C system, and reporting, enroll in the Skillbox course "Accountant Profession." This is an excellent opportunity for those who want to develop in this field.
• Skillbox also offers the course "Financial Manager Profession," which will help you learn how to assess the financial health of a business and analyze investment projects.

Additional resources Skillbox Media for entrepreneurs and executives offers a wide selection of materials to help you develop your business and manage teams. We provide access to relevant courses, webinars, and articles covering key aspects of entrepreneurship, strategic management, and marketing. These resources will help you improve your skills, expand your knowledge, and implement innovative approaches in your practice. Use the power of Skillbox Media to improve your business efficiency and reach new heights in your career.

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