Analysing Accounts



WHAT IS THE TRUE NET PROFIT?
When considering a Care Home it is imperative that you analyse the recent trading accounts. A thorough analysis of the accounts will provide you with an indication of the true net profit of a business. This in turn will help you to decide the ultimate purchase price. It is always advisable to discuss a specific set of accounts with a professional advisor with knowledge of the care market, such as our sponsors Chandler & Co. Take a look below at the highlighted categories that you should be paying particular attention to, but don't forget professional advice is absolutely essential, don't go it alone!

PROFIT AND LOSS EXAMPLE
Move your mouse over the light blue boxes for an explanation.

Mr & Mrs J. Smith trading as
'A Typical Care Home'

Trading and Profit and Loss Account for the year ended 31 December 2000

2002

Fee Income:

381,255

Cost of Sales:

Food etc

17,411

Resident's welfare

1,054

Wages

169,548

188,013

GROSS PROFIT

193,242

Other income:

Deposit account interest

566

193,808

Expenditure:

Telephone

927

Post & Stationery

1,595

Advertising

1,976

Motor Expenses

4,314

Repairs & Renewals

7,756

Laundry & Cleaning

2,504

Training

332

Sundry Expenses

481

Accountancy

588

Professional Charges

1,552

Rates & Water

5,719

Insurance

1,312

Light & Heat

6,633

35,689

158,119

Finance Costs:

Bank Loan Interest

39,817

Leasing

4,844

Bank Charges

445

45,106

173,013

Depreciation:

Fixtures & Fittings

5,933

Motor Vehicles

2,992

8,925

NET PROFIT

104,088

Although the net profit is shown as Ł104,088 the true reconstituted net profit is as follows:

NET PROFIT	Ł104,088
ADD BACK FINANCE COSTS	Ł45,106
ADD BACK DEPRECIATION	Ł8,925
TAKE OUT DEPOSIT INTEREST	Ł466

RECONSTITUTED NET PROFIT	Ł157,653