Intermediate management balances
The cascade that leads from sales to net income: trading margin, value added, gross operating surplus, operating income, ordinary income before tax, net income, and self-financing capacity.
- 31 cards
- 5 topics
- Free
The outline, topic by topic
Each topic is weighted the way the exam weighs it.
- Concepts
- Questions
- Sort and link
- Scenarios
- Understand
A few cards from the deck
Trading margin: what is it?
Show the answer
Sales of goods less their purchase cost, change in stock included: what a trading activity earns.
Only a buy-and-resell activity has one. A services company has none: its cascade starts with production.
Value added €300,000, no operating subsidies, taxes €10,000, staff costs €220,000. What is the gross operating surplus?
- 70 000 €
- 80 000 €
- 90 000 €
- 290 000 €
Show the answer
70 000 €
300,000 − 10,000 − 220,000 = 70,000. Forgetting the taxes gives 80,000; adding them instead of subtracting gives 90,000; forgetting staff costs gives 290,000.
Value added = trading margin + output for the year − ….
Show the answer
Value added = trading margin + output for the year − consumption from third parties.
What was bought outside (materials, subcontracting, outside services) is removed: what remains was created by the company.
Value added: what is it?
Show the answer
Wealth created by the activity: trading margin and the year's output, less what is consumed from third parties (purchases, outside services).
It is then shared between employees, the State (taxes), lenders and the company itself.
A small company shows a clearly positive gross operating surplus but a negative net income. What is the most likely reading?
- The activity creates no value added and should be stopped
- Depreciation and interest on a recent investment bought on credit absorb the surplus
- Staff costs are too heavy for the business
- The company lacks cash, which lowers the result
Show the answer
Depreciation and interest on a recent investment bought on credit absorb the surplus
GOS is computed after staff costs, so a high GOS rules that out. The gap between GOS and net income comes from depreciation, financial costs and tax; go down the cascade (operating, then ordinary income) to see where the balance deteriorates.