Summary: Riordan Manufacturing

Riordan Manufacturing: Profit and Loss Statement Analysis

BSA/310

An effective indicator of a business’s overall performance and efficiency is the profit and loss statement. A profit and loss statement, more commonly referred to as an income statement, is a report of the changes in the income and expense accounts over a specific period of time. It provides a valuable source for identifying marketing trends, understanding the strengths and potential weak areas of a business, and measuring the efficiency of operations. This paper will analyze the income statement and financial status of Riordan Manufacturing, Inc.
Riordan Manufacturing is a global plastics manufacturer with 550 employees and projected annual earnings of $46 million. The
However, this increase in revenue does not necessarily indicate an increase in profits. The direct cost of goods sold at the end of the 2005 fiscal year is over $4.5 million more than the cost of goods sold at the start of the year. The difference between the sales, or revenue, and the direct cost of goods sold, is used to calculate the gross profit margin. The gross profit margin is the amount of profit generated before overheads and other expenses are taken into account. The gross margin at the end of the 2005 was $8,786,061, which is $221,823 more than the gross margin generated the previous year (Riordan Manufacturing 1). With an increase in sales over a 12-month period, the company experienced only a slight increase in gross profit margin. To increase their gross margin, Riordan may consider a slight increase in product cost. Even a small percentage increase in product cost to consumers, the company can increase gross profit margin
Riordan’s operating expenses include: Sales, Marketing, & Other expenses, Depreciation of equipment necessary for production, Quality Assurance, Research & Development, General & Administrative, and Machining & Systems expenses. Sales and marketing expenses include advertisements, promotional discounts, and similar expenses that do not generate revenue directly, but attempt to increase future sales and establish a larger clientele. The sales and marketing expenses incurred for the year were $1,012,974, which is $92,088 more than the previous year (Riordan Manufacturing 1). Although the sales and marketing expenses were higher, the revenue generated from sales was substantially higher. However, with the cost of products seemingly the same as the previous year, and the cost of goods sold increasing by approximately 1.5%, the potential for a significant increase in profits was