Question

Take a look a this companies projected profit and loss. Analyze and describe the health of the company.

	2020	2021	2022
Revenue	$681,720	$1,940,280	$3,198,790
Direct Costs
Gross Margin	$681,720	$1,940,280	$3,198,790
Gross Margin %	100%	100%	100%
Operating Expenses
Salaries & Wages	$288,000	$293,760	$299,636
Employee Related Expenses	$57,600	$58,752	$59,927
Buffalo Hospital Supply	$60,000	$60,000	$60,000
Fountain Plaza Furnished Office including Utilities Rental ($750 ea. for two office spaces)	$18,000	$18,000	$18,000
Research and Development	$24,000	$24,000	$24,000
Legal and Professional Services	$10,200	$10,200	$10,200
Accountant Fees	$12,000	$12,000	$12,000
Marketing & Website	$12,000	$10,000	$8,000
Insurance	$24,000	$24,000	$24,000
Travel	$15,000	$15,000	$15,000
Supplies	$9,600	$9,600	$9,600
Depreciation	$26,760	$26,760	$26,760
Amortization of Other Current Assets		$96,000	$96,000
Total Operating Expenses	$557,160	$658,072	$663,123
Operating Income	$124,560	$1,282,208	$2,535,667
Interest Incurred	$0	$0	$0
Depreciation and Amortization
Income Taxes	$24,912	$256,442	$507,133
Total Expenses	$582,072	$914,514	$1,170,256
Net Profit	$99,648	$1,025,766	$2,028,534
Net Profit / Sales	15%	53%	63%

Answer 1

1) There are no direct cost to the company and more than half of the expenditure in 2020 is towards salaries and wages which implies that the company is Service oriented.

2) The P&L of 2020 seems to be healthy and with 15% of net profit. It implies that the company is operating well with good control over the expenses.

3) However in the revenue seems to increase substantially by 1.84 times in 2021 and 0.65 time in 2022 to the revenue in previous years. Which implies that the company was newly incorporated in 2020 and it is expecting a huge increase in revenue.

But revenue more than doubling within a year is not a achievable target for most cases and it implies that the company is projecting its revenue very high.

4) Also the major expense to the company i.e., salaries and wages have not increased in proportion to the sale turnover. It clearly implies that the company is over projecting its revenue.To increase the revenue one should either invest in manpower or technology . There is no increase in depreciation either.

(No details of amortization of 96000 are available in the question which might be for a software or any other intangible asset)

5) The net profit of 53% and 63% also seems very high.