Educational material from 
What you will learn
- Distinguish the sales amount from the result after costs.
- Calculate a simple result margin using revenue as the base.
- Explain why profit, cash flow and share price require different information.
Read sales and costs for the same period
In our simplified model the result equals revenue minus all costs. If sales are SEK 100,000 and the total costs are SEK 90,000, the result is SEK 10,000. We call a positive result profit and a negative one loss. The two amounts cover the same time period.
A real income statement has more lines and may show several result measures, such as before or after particular costs. The SEC describes how an income statement brings together revenue and expenses over a period. Our grouped cost line is a practice model, rather than a template for accounting or a tax return.
The largest sales amount does not always produce the highest profit
Company A sells SEK 100,000 and retains 10,000 after its costs of 90,000. B sells the most, 150,000, but its costs are 148,000, leaving only 2,000. C sells 80,000 and has costs of 85,000: its result is −SEK 5,000.
Sorting revenue alone puts B first. Sorting profit puts A first. Every name and amount was created for this task. The example shows why a claim about more products sold or higher sales needs additional information before you describe a change in the company’s result.
If the table does not fit, scroll it sideways.
| Company | Revenue | All model costs | Result |
|---|---|---|---|
| A | SEK 100,000 | SEK 90,000 | +SEK 10,000 |
| B | SEK 150,000 | SEK 148,000 | +SEK 2,000 |
| C | SEK 80,000 | SEK 85,000 | −SEK 5,000 |
Put the result in relation to sales
The model’s result margin is result ÷ revenue × 100. For A it is 10,000 ÷ 100,000 × 100 = 10%. For B it is about 1.33%, and for C −6.25%. The measure shows the size of our particular result relative to the sales amount.
State which result you use when presenting a margin. An actual measure based on operating profit is not automatically the same as a measure after all costs. A higher margin in one example is also no general rule about which company someone should buy shares in.
Profit is not a bank balance or a share price
A sale may be recognized before the customer has paid. A company can also pay for items that affect cash differently from the period’s cost line. Profit and cash flow are therefore related but different information. Our table contains no payment dates or assets and is not enough to calculate the companies’ bank balances.
The share price is another question again. The table’s profit does not determine a particular price or provide a forecast. When examining a company in a learning activity, write down what the material actually shows and its period. The product guide explains Investiq’s company information, but this lesson does not promise complete financial-report analysis inside the app.
Try it yourself
A fourth fictional company sells SEK 120,000 during the period. All its costs in the same model are SEK 126,000. Calculate the result and result margin. Is the result a profit or a loss?
Show the solution and explanation
−SEK 6,000 and −5%. The result is a loss.
120,000 − 126,000 = −SEK 6,000. −6,000 ÷ 120,000 × 100 = −5%. Revenue is positive even when costs make the result negative.
Check your understanding
Does the company with the largest revenue always have the highest profit?
No. B sells the most in the model, but A has the highest profit because their costs differ.
Can you read the money in the bank directly from the period’s profit?
No. Profit and cash flow differ. You also need payment information and other cash events.
Practise with virtual money
Try what you just learned in a practice portfolio with virtual money. You don't deposit any real money.
How the practice portfolio worksKeep learning and practising
More lessons on this topic
Returns, inflation and company results
- Real return and inflation: calculate what your money can buy
- Fees and investment returns: account for the whole purchase and sale
- Annualized return and averages: calculate two different measures
- Deposits and investment returns: follow the money in the right order
- New shares and ownership dilution: calculate the change in your stake
Sources and examples
The sources support the factual explanations. Calculations and exercises were created for this lesson. Amounts and price changes are invented unless stated otherwise.
This material is educational and does not recommend securities to buy. A simulated result does not guarantee a future result.
