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when i applied the knowledge which we learned in F7 to calculate real companies’ annual reports, i found that some companies got separate columns in their income statement listing information like ‘revenue before other items’,’other items’, ‘total’.
So when i calculate ratios for companies whose income statements like these, which number should I use. Just use the total number? Thanks!It really depends on the nature of the other items and the reasons why you are calculating ratios.
If the other items (I assume the revenue from other items is material) relate to non-trading activities or the sale of non-produced activities, and if your calculations are for the purposes of determining gross profitability or other productive bench-marks, then base your figures solely on the revenue figure relating to those activities.
If you’re looking for revenue generated from all sources as a result of the varied uses to which resources have been put, then base your calculations on total revenue.
It’s not possible to be definitive unless you identify the fundamental reason for your performance of ratio analysis!
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