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Changes in inventories of finished goods and work in progress

Questions › Category: Financials Quadrant › Changes in inventories of finished goods and work in progress
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Jieren Zheng asked 6 years ago

Hi guys,
I noticed this line on the Profit/Loss Statement: “Changes in inventories of finished goods and work in progress”.
Do we need to handle this revenue in any specific way? (Stripping it out, etc)
Or can we just safety ignore it.
It is found in an annual report of manufacturer of copper wires (Tai Sin).
Cheers
Jieren

9 Answers
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Victor Chng answered 6 years ago

Hi Jieren,
 
If the change in inventories is positive you have to remove it from the net profit and if it is negative, you have to add it back to the net profit 

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Jieren Zheng answered 6 years ago

Hi Victor,
Thanks!
So, I do that for the gross profit margins too right?

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Victor Chng answered 6 years ago

There is no adjustment to the gross margins because the changes in inventories happen after the gross profit. 
 

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Jieren Zheng answered 6 years ago

OH!
I didn’t realised that. The P/L Statement put Change in Inventories first, followed by Cost of Goods.
So the gross margins will be just Revenue less Cost of Goods right? I’ll ignore the Change in Inventories numbers until I wish to see the actual net profits?

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Jieren Zheng answered 6 years ago

[caption id="" align="alignnone" width="250"]Tai Sin Electric P/L Statement 2007 Here is an example[/caption]
 

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Jieren Zheng answered 6 years ago


Does it work this time?

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Victor Chng answered 6 years ago

 Hi Jieren,
 
For gross profit margin just use revenue minus the raw material. As for the changes in inventories just take the figure and minus of from the net profit.

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Jieren Zheng answered 6 years ago

Hi Victor,
Okay, Thank you so much!