Understanding Financial Statements

Net operating losses can be one of the more challenging techniques in FP&A modeling. But it doesn't have to be hard. Here's how to do it. (1) What are net operating loss (NOL) carryforward and how do they work? NOLs are simply losses from operations that don't result in active cash taxation. They offer a deferred tax asset that can be used in part or in full to offset future tax liabilities. In this example in 2024, you can see a loss of $108.4 million. There is no cash tax liability but there is an NOL carryforward. The $108.4 million NOL is carried forward to future taxable periods. If there is another period of operating losses, the NOLs may grow. If there is taxable income, the NOL will reduce it and the carryforward balance will decline. In years 2 and 3, because there are more operating losses, the accumulated NOL grows to $133.4 million. (2) How are deferred taxes from NOLs calculated? Deferred taxes aren't the NOLs -- they're calculated by taking the tax rate and applying it against the operating income or loss. Deferred tax liabilities and assets, not the NOLs, are what hit the balance sheet. But to calculate these deferrals, you need to know the cumulative balance of the NOL. In the middle forecast, I calculate increases and decreases in deferred taxes. (3) How do NOLs get applied to taxable income? In 2027 (year 4), operating profit finally becomes positive in the amount of $74.6 million. The NOL is applied and drops to $58.8 million. In 2028 (year 5), taxable income is positive again and the remaining NOL is exhausted. The company then starts accumulating and paying cash income taxes. Then going forward, it's business operations as usual. --------------- For many people working in FP&A, they'll never have the misfortune of working in a company with chronic operating losses. They’ll never have to understand these seemingly-complex modeling calculations. Because when a company has positive taxable income, the calculation of cash taxes is easy. But for FP&As working in businesses with operating losses, knowing how to calculate NOLs and deferred taxes is a necessity. Without this familiarity, the balance sheet, tax expense on the P&L, and cash tax outflows may all be grossly miscalculated. That's bad FP&A.

My client thought his ₹50,000 F&O loss didn't matter—until he got a tax notice demanding ₹2 lakh. He’s a salaried professional who dabbles in Futures and Options (F&O) trading. Last year, he incurred a loss of ₹50,000 in F&O trades. Since he didn't make any profits, he assumed there was no need to mention it in his Income Tax Return (ITR). He was wrong. A few months later, he received a tax notice for not declaring his F&O transactions, along with a potential penalty of up to ₹2 lakh for non-compliance. What happened? ➡️ F&O trading is considered non-speculative business income under Section 43(5) of the Income Tax Act. ➡️ All F&O transactions, whether profit or loss, must be reported in your ITR. ➡️ Failure to declare can lead to scrutiny, penalties, and legal hassles. Why declaring F&O losses is crucial: ➡️ Tax Deduction: You can offset F&O losses against other income (except salary), reducing your taxable income. ➡️ Carry Forward Losses: Unadjusted losses can be carried forward for 8 years to offset future business profits. ➡️ Compliance: Proper reporting keeps you on the right side of tax laws and avoids unwanted notices. Here's what you should do: 📍 Use the Correct ITR Form: File ITR-3 for individuals having income from business or profession. 📍 Report Under 'Income from Business or Profession': Declare F&O losses in this section. 📍 Maintain Accurate Records: Keep all contract notes, trade statements, and bank statements. 📍 Calculate Turnover Correctly: Sum up the absolute values of profits and losses from all F&O transactions. 📍 Check for Tax Audit Requirement: If your turnover exceeds ₹3 crore, or if you're reporting losses, you may need a tax audit by a Chartered Accountant. Don't make the same mistake. Ignoring F&O losses can cost you dearly, even if you're primarily salaried and trade occasionally. Key Takeaways: 📍 Always declare all sources of income and losses in your ITR. 📍 Stay informed about tax regulations related to F&O trading. 📍 Consult a tax professional if you're unsure about the filing process. Have you or someone you know faced issues with F&O trading losses? Let's discuss and help each other navigate this complex area. Don't wait for a tax notice to understand the importance of proper reporting. Act now! #TaxCompliance #FuturesAndOptions #IncomeTax #FinancialAwareness #StayCompliant

When the problem isn’t what you think – a lesson from The Aje Collective In retail, it’s tempting to see a P&L and fixate on customer acquisition cost or marketing spend. After all that's what a lot of time is spent obsessing over. But sometimes the real issue lies further upstream, before contribution profit. For Aje, the crunch is in gross margin in my opinion. As the recent article in the Australian Financial Review puts it: “Not back to fashionable black, but Aje is looking up”. With reported gross margin at approximately 54%, this is too low for meaningful profits to flow to the EBITDA line. From my experience looking at a lot of data across retail businesses, a fashion-brand margin in the 70%+ range is what allows for genuine scalability and profit, not just growth. If gross margin is too thin, no matter how strong marketing or brand awareness is, downstream profit will suffer. Now, you might argue CAC is the issue. But when you consider Aje’s brand recognition and strong store network (for example the combined Aje, Aje Athletica & Aje Studio format in Bondi Junction – I can speak as a shopper) this seems less likely. With CAC at around 13% of sales (which is not excessive) the brand awareness and physical footprint look to be in place. The real issue: low margin → high cost base → weaker profitability. That new store concept (one rent, one team across three in-house brands) is a smart step towards cost consolidation as well as improved customer experience, and that’s the kind of operational move that supports margin recovery. ✅ Key takeaway for retail executives and investors: Focus first on the gross margin foundation. Once margin is solid, then you can scale acquisition and growth with confidence. Without that, you’re just amplifying volume over value. Nothing kills gross margin quite like discounting to drive cash flow into products that were over bought or under marketed!

📊 Restaurant P&L Breakdown: Understanding the Numbers That Drive Profitability In the F&B industry, success isn’t just about great food and service—it’s about financial discipline. A well-managed Profit & Loss (P&L) statement helps operators analyze key costs and optimize profitability. 🎯Breaking Down P&L: Key Metrics & Percentages 1. Revenue (100%) - Food Sales – 60-70% of total revenue - Beverage Sales – 20-30% (higher for bars) - Other Income – 5-10% (events, catering, delivery fees) 2. Cost of Goods Sold (COGS) (25-35%) - Food Cost – 25-35% (depends on cuisine & supplier pricing) - Beverage Cost – 18-25% (alcoholic drinks have higher margins) 3. Labor Cost (25-35%) - Front-of-House Staff – 10-15% - Kitchen Staff – 10-15% - Management & Admin – 5-10% 4. Operating Expenses (15-25%) - Rent & Utilities – 5-10% - Marketing & Advertising – 3-6% - Maintenance & Supplies – 5-10% 5. Miscellaneous Costs (5-10%) - Licenses & Permits – 2-5% - Insurance & Taxes – 3-5% 6. Net Profit (10-15%) - Ideal profit margin after all expenses are deducted 🔴Example Calculation for a Restaurant Generating AED 500,000 Monthly Revenue - Food Cost (30%) → AED 150,000 - Beverage Cost (20%) → AED 100,000 - Labor Cost (30%) → AED 150,000 - Rent & Utilities (10%) → AED 50,000 - Marketing (5%) → AED 25,000 - Misc. Expenses (5%) → AED 25,000 - Net Profit (10%) → AED 50,000 ✅Why P&L Matters in F&B A well-structured P&L isn’t just a report—it’s a blueprint for success. Tracking food, beverage, labor, and operating costs helps business owners make data-driven decisions that enhance efficiency and profitability. 💡 How do you approach P&L management in your business? Let’s discuss #RestaurantManagement #ProfitAndLoss #FBCostControl #BusinessStrategy #HospitalityIndustry #FoodCost #BeverageCost #LaborCost #RestaurantProfitability #FinancialPlanning #FandBLeadership

Googling a formula is easy Gross Margin and Contribution Margins (1,2 & 3) Understanding them as key business metric is the real deal. But what is the actual significance of GM, CM1 & CM2, how to look at them ? #VentureCapital 1. 𝐆𝐌 (production / pricing) 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧: Gross margin is % of sales revenue minus the cost of goods sold (COGS). It reflects the efficiency of production and price advantage. - Higher gross margins indicate efficient production with relatively low COGS. - If the gross margin is declining over time, it may suggest rising production costs or reduced pricing power. 𝐈𝐧𝐬𝐢𝐠𝐡𝐭: The brand's ability to produce and sell goods in the market. 1. 𝐂𝐌1 (shipping) 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧: CM1 = Sales Revenue - COGS - Direct Variable Selling Costs (e.g., shipping, packaging, etc.) - CM1 reflects the profitability after accounting for variable selling costs, which are directly tied to the production and sale of goods. - If CM1 is high, the business is not only covering its production costs but also direct selling costs effectively. - A decreasing CM1 over time could signal inefficiencies in shipping, fulfillment, or variable selling expenses. 𝐈𝐧𝐬𝐢𝐠𝐡𝐭: Shows how well the brand manages both production and logistics. 1. 𝐂𝐌2 (marketing / distribution) 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧: CM2 = CM1 - Marketing and Distribution Costs (advertising, promotional costs). - CM2 evaluates the brand’s ability to generate profit after covering all variable costs, including marketing and distribution. - High CM2 indicates that marketing efforts are driving sufficient sales to cover costs and contribute to profitability. - A declining CM2 might suggest that marketing or distribution expenses are growing faster than sales. 𝐈𝐧𝐬𝐢𝐠𝐡𝐭: Reflects the effectiveness of marketing and sales efforts in driving profits. 1. 𝐂𝐌3 (Operational profit) 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧: CM3 = CM2 - Indirect Costs (like overhead, admin, and fixed costs associated with the business). - CM3 gives the true picture of operating profitability after all direct and indirect costs. - A high CM3 means the business can efficiently cover both variable and fixed costs. - If CM3 is low or negative, it may indicate that indirect costs are eating into profitability. 𝐈𝐧𝐬𝐢𝐠𝐡𝐭: Operational profitability; the final profitability metric before EBITDA, insight into how the company can scale. 𝐅𝐞𝐰 𝐈𝐧𝐭𝐞𝐫𝐩𝐫𝐞𝐭𝐚𝐭𝐢𝐨𝐧𝐬: 1. Upward Trend Across All Margins: Indicates improving cost controls, pricing strategies, operational efficiencies. 🟢 2. Flat or Declining Gross Margins, but Rising Contribution Margins: Could indicate successful cost management in marketing and distribution, even if production costs are rising. 🟡 3. Declining CM2 or CM3: Signals that rising variable or indirect costs (e.g., marketing or overhead) are eating into profits, requiring a closer look at marketing ROI or overhead control. 🔴

In the complex world of tax, it’s easy to assume that logically tax should not apply to a transaction and make a costly mistake. The recent case of Arshad Mahmood v HMRC highlights the importance of seeking professional tax advice before undertaking significant transactions. In this case, Mr. Mahmood transferred ten commercial properties to a company owned by his wife, believing that no Capital Gains Tax (CGT) would arise due to the spousal CGT exemption and the properties being transferred for consideration equal to their CGT base cost. However, this was not the case as the company and his wife are two separate and distinct personalities for legal and tax purposes. HMRC opened an enquiry and subsequently issued a closure notice assessing Mr. Mahmood to CGT on the basis that a capital gain arose on the transfer, based on the market value of the properties. Penalties were also charged for submitting an inaccurate tax return. Mr. Mahmood and the company attempted to rescind the transfer, believing that the original transfer would not have resulted in a CGT charge. However, the First Tier Tribunal (FTT) found that the transaction could not be rescinded or treated as if it had never taken place simply because it was reversed. Misunderstandings about tax law can lead to costly mistakes that cannot be undone. It’s crucial to understand that tax law is complex and that the consequences of transactions can’t always be reversed. Remember, it’s always better to seek advice before a transaction rather than trying to fix things afterwards. As this case shows, once a transaction has been executed, it’s often too late to change the tax consequences. #taxlaw #tax #HMRC #CGT

10 𝐏&𝐋 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬 𝐄𝐯𝐞𝐫𝐲 𝐑𝐞𝐬𝐭𝐚𝐮𝐫𝐚𝐧𝐭 𝐌𝐚𝐧𝐚𝐠𝐞𝐫 𝐒𝐡𝐨𝐮𝐥𝐝 𝐌𝐚𝐬𝐭𝐞𝐫 (𝐈𝐟 𝐘𝐨𝐮 𝐖𝐚𝐧𝐭 𝐭𝐨 𝐁𝐞 𝐌𝐨𝐫𝐞 𝐓𝐡𝐚𝐧 𝐉𝐮𝐬𝐭 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐨𝐧𝐚𝐥) If you’re in a leadership role and still treating the P&L like “just a finance sheet,” you’re missing your most powerful strategic tool. The Profit & Loss Statement is your monthly reality check — and it’s where great managers become business-minded leaders. Here are 10 advanced insights you should be applying right now: 1. Revenue Mix Analysis Matters More Than Revenue Alone A 1M revenue month sounds great… until you realize 80% came from discounted packages. Break down where your money is actually coming from. 2. COGS Isn’t Just Kitchen’s Problem — Front of House Influences It Daily Portion control, misfires, incorrect orders, and comps affect food cost. FOH must be trained to protect margins too. 3. Labor Cost Is a Leadership Reflection If your labor is consistently high, it’s not just scheduling — it’s training gaps, unclear SOPs, or micromanagement. Optimize systems, not just shifts. 4. Forecast vs. Actual = Your Decision-Making Scorecard Don’t just input numbers. Compare projected vs. actual, and analyze the why behind variances — that’s where the real improvement lives. 5. Expense Spikes = Process Failures Sudden increases in linen, breakage, or repair costs usually reveal underlying operational inefficiencies. Don’t just approve them — investigate. 6. Discounts Are Not a Guest Service Tool Track every comp and discount. If they’re not tied to a strategic reason, they’re silently killing your profit margin. 7. Entertainment & Promotions Need ROI Just Like Any Investment Free dinners, influencer visits, live music — if you can’t measure the impact, you can’t justify the cost. 8. High Gross Profit with Low Net Profit = Hidden Bleeding You might be pricing correctly but bleeding cash on unnecessary operational waste. Always track net margins by outlet, not just department-wide. 9. Outlet-Level P&L Reviews Are Non-Negotiable A central P&L doesn’t show you underperforming outlets. Treat each venue like its own business unit — or you’ll miss key revenue opportunities. 10. Staff Should Understand P&L — Not Just Managers When your supervisors and senior waiters know how the business makes money, they act like owners. That’s how real cultures shift. You don’t grow a profitable restaurant by chance — you grow it by knowing what every number means and teaching your team to care about it too. If you’re a GM, F&B Director, or Executive Chef — what’s one P&L lesson you wish you learned earlier? #RestaurantLeadership #FandBTraining #HospitalityEducation #WaiterDevelopment #BeachsideBriefing #PAndLMastery #ServiceLeadership #EmpowerYourTeam #HospitalityGrowth #OperationalExcellence #TropicalTraining #RestaurantOperations #UpskillHospitality #ServiceWithPurpose #FrontlineLeadership #TeamBriefing #FromWaiterToLeader #ShehanShares #LinkedInHospitality

10 Calculations Every Apparel Professional Should Know Procurement in apparel is all about numbers. If you miscalculate, your margins vanish. Here are ten formulas that can help you understand costs and make better sourcing decisions: 1. Fabric Cost per Garment Fabric is the biggest cost driver. Knowing the right consumption and wastage is critical. Formula: Fabric Cost = (Consumption × Fabric Price) + Wastage Example: 1.8m × $1.50 + 5% wastage = $2.84 per shirt 2. Selling Price from Target Margin Retailers often work backward from the margin they want. This formula helps you check if your cost matches their expectations. Formula: Selling Price = Cost ÷ (1 − Target Margin %) Example: Cost = $5, Margin = 60% → 5 ÷ 0.40 = $12.50 3. CMT (Cut, Make, Trim) Cost The labor portion of your garment cost. It depends on SAM, labor cost per minute, and efficiency. Formula: CMT = (SAM × Labor Cost per Minute) ÷ Efficiency Example: 25 min × $0.05 ÷ 0.85 = $1.47 per shirt 4. Landed Cost What the garment really costs once it reaches your warehouse. Includes all sourcing overheads. Formula: Landed Cost = Fabric + CMT + Freight + Duties + Handling Example: 2.84 + 1.47 + 0.40 + 0.25 = $4.96 per shirt 5. Gross Margin % Shows the profit percentage you make after covering costs. Buyers track this religiously. Formula: [(Retail Price − Cost) ÷ Retail Price] × 100 Example: (12 − 4.96) ÷ 12 × 100 = 58.7% 6. Markup % The flip side of gross margin—shows how much higher your selling price is compared to cost. Formula: [(Retail Price − Cost) ÷ Cost] × 100 Example: (12 − 4.96) ÷ 4.96 × 100 = 142% 7. Break-Even Units The minimum number of units you need to sell to recover fixed costs. Great for planning production runs. Formula: Break-Even = Fixed Costs ÷ (Retail Price − Variable Cost) Example: 50,000 ÷ (12 − 5) = 7,143 units 8. Markdown Impact Discounts eat into margins. This shows how much profit you have left after markdowns. Formula: [(New Price − Cost) ÷ New Price] × 100 Example: Markdown to $9 → (9 − 4.96) ÷ 9 × 100 = 44% margin 9. Inventory Turnover Measures how fast stock sells through. Higher turnover = healthier cash flow. Formula: COGS ÷ Average Inventory Example: 2M ÷ 0.5M = 4x per year 10. Open-to-Buy (OTB) Helps you control how much inventory to bring in. Keeps buying in line with sales and stock levels. Formula: OTB = Planned Sales + Planned Markdowns + EOM Stock − BOM Stock Example: 500k + 50k + 300k − 400k = $450k These ten calculations can make or break profitability in apparel retail. They connect sourcing costs with retail realities, giving you a transparent view of margins.

The P&L Is Not the Finance Team’s Job Too many restaurant managers treat the P&L like a report they receive. They wait for the month-end numbers. They shrug at variances. They hand over explanations to finance. But here’s the reality: > If you manage a restaurant, the P&L is your responsibility. > Not accounting. Yours. At Gastronomica, we make this crystal clear: The P&L isn’t a scoreboard. It’s a management tool. It tells you where you’re winning, bleeding, missing, or coasting. And if you don’t understand it, you’re flying blind. Here’s what real P&L ownership looks like: 🔹 You know your daily revenue vs. target Not just for the month, but day by day, shift by shift. 🔹 You control your food cost in real time Because you know your recipes, your wastage, your discounts, your voids. 🔹 You manage your labour hours against the forecast Not just fill rosters to feel safe. 🔹 You track your delivery margins Including aggregator commission, packaging, and portion controls. 🔹 You investigate every variance, not just blame others If your theoretical and actual don’t match, you dig. You fix. The best operators review their profit and loss (P&L) statement weekly. Not to wait for surprises, but to prevent them. Train your managers on: > Reading the P&L line by line > Understanding what they control and what they influence > Asking questions, not just accepting the numbers > Collaborating with Finance, not hiding from it Your P&L is a map. But only if you know how to read it. Teach it. Own it. Use it. Because profitability is everyone’s responsibility, not just the finance team’s. #RestaurantFinance #PNLOwnership #OperationalExcellence #RestaurantLeadership #FNBProfitability #GCCFNB #Gastronomica

Here is a detailed breakdown of a Restaurant Profit & Loss (P&L) Statement — step-by-step, with realistic numbers, industry benchmarks, and explanations to help understand where the money goes and how to optimize it: ⸻ 🍽️ RESTAURANT P&L BREAKDOWN (Monthly – Example: ₹10,00,000 Revenue) ⸻ 🔹 1. Total Sales (Revenue): ₹10,00,000 Includes: • Dine-in Sales • Delivery & Takeaway • Beverages • Catering (if any) ⸻ 🔹 2. Cost of Goods Sold (COGS): ₹3,00,000 (30%) This includes: • Food ingredients • Beverages (alcoholic/non-alcoholic) • Packaging material Goal: Keep this under 30-35%. ✅ Tip: Reduce wastage, negotiate better with suppliers, monitor portion sizes. ⸻ 🔹 3. Labor Cost: ₹2,50,000 (25%) Includes: • Chefs, kitchen staff, servers, cleaners • Management salaries • Payroll taxes, uniforms, meals for staff Goal: 25% is healthy. ✅ Tip: Optimize scheduling and cross-train staff to reduce overtime. ⸻ 🔹 4. Rent + Utilities: ₹1,00,000 (10%) Includes: • Monthly rent • Electricity • Water • Gas • Internet & phone ✅ Tip: Negotiate longer lease with better terms, switch to energy-efficient equipment. ⸻ 🔹 5. Operating Expenses: ₹1,00,000 (10%) Includes: • Cleaning supplies • POS software, licenses • Tableware, napkins, kitchen equipment repair • Linen & laundry ✅ Tip: Track expenses weekly; cut subscriptions not used. ⸻ 🔹 6. Marketing & Advertising: ₹50,000 (5%) Includes: • Social media ads • Influencer collabs • Promotions • Print materials ✅ Tip: Focus more on organic content marketing and local SEO. ⸻ 🔹 7. Repairs & Maintenance: ₹30,000 (3%) Includes: • Kitchen equipment service • AC, plumbing • Preventive maintenance ✅ Tip: Preventive maintenance reduces big breakdown costs. ⸻ 🔹 8. Licensing, Fees, Insurance: ₹30,000 (3%) Includes: • FSSAI, GST, Fire, Music licenses • Insurance (liability, fire, property) • Legal/consulting fees ✅ Tip: Always renew on time to avoid penalties. 🔹 9. Net Profit: ₹1,50,000 (15%) 💡 Ideal target: 10–15% net profit margin in the food industry. If your net profit is below 10%, review: • Food cost control • Staff productivity • Waste management • Sales growth strategies ✅ Summary Table Category % of Sales ₹ Amount Sales 100% ₹10,00,000 Cost of Goods Sold (COGS) 30% ₹3,00,000 Labor Cost 25% ₹2,50,000 Rent & Utilities 10% ₹1,00,000 Operating Expenses 10% ₹1,00,000 Marketing & Advertising 5% ₹50,000 Repairs & Maintenance 3% ₹30,000 Licensing, Insurance, Misc. 3% ₹30,000 Net Profit 15% ₹1,50,000 📉 Red Flags to Watch Out For: • COGS > 35% = Overbuying, wastage, theft • Labor Cost > 30% = Overstaffing or poor training • Low revenue per seat/hour = Poor table turnover or pricing • Net profit < 10% = Recheck pricing, food cost, and marketing ROI