LearnBusiness

Hey business owners! 👋 Do you know why a profitable business can still struggle to pay its bills? 🤔 Let me explain working capital in a simple way. Working Capital = Current Assets - Current Liabilities. Cash of ETB 35,000, inventory of ETB 75,000, and customer receivables of ETB 20,000 give current assets of ETB 130,000. If the shop owes suppliers ETB 55,000 and has a short-term loan payment of ETB 25,000, current liabilities are ETB 80,000. Working capital is ETB 130,000 - ETB 80,000 = ETB 50,000. Collect customer payments on time, avoid excess inventory, plan weekly cash needs, and separate business money from personal spending. 💸 Profit shows whether the business earned money. Working capital shows whether it can keep operating day by day. 📈

Accounting Profit Non-deductible Expenses Taxable Income in tax… What is the difference between them? Both students and business people need to properly understand the difference between them. Example: Let’s take one PLC company. Assume this company earned a total revenue of 1,000,000 birr this year. This is called Revenue. It spent 200,000 birr on production costs. This is known as COGS (Cost of Goods Sold). Now… we subtract the production costs (COGS) from the total revenue (Revenue). That means: Revenue – COGS 1,000,000 – 200,000 = 800,000 {This 800,000 birr is called Gross Profit} From this total revenue, all other expenses must also be deducted… Therefore… we need to separately list all the expenses. The company’s expenses: - Salaries = 200,000 - House rent = 50,000 - Electricity and water = 8,000 - Internet = 12,000 - Traffic fines = 5,000 - Other expenses = 10,000 Total of the above expenses = 285,000 This means the company spent 285,000 birr to carry out its operations this year. {These expenses are known as Operating Expenses} Now we can subtract all the expenses from the income the company earned: Gross Profit – Operating Expenses 800,000 – 285,000 = 515,000 This 515,000 birr is known as Accounting Profit or Profit Before Tax. Now we need to think about tax. Before calculating tax, we must add back the non-allowable expenses… such as traffic fines, etc., to the Accounting Profit. This is mandatory. {These non-allowable expenses are called Non-deductible Expenses} When we add them back: Accounting Profit + Non-deductible Expenses = 515,000 + 5,000 (fines) = 520,000 This 520,000 birr is called Taxable Income. Tax is calculated on the 520,000. This said company is a PLC. A PLC company pays 30% tax on Taxable Income. That means: Tax = (520,000 × 30%) = 156,000 The company pays 156,000 birr in tax. After the tax is paid, what remains is: 515,000 – 156,000 = 359,000 Finally… the net profit the company earned is 359,000 birr. {This is called Net Profit} Comment what you have learned. --------- If you want to read in Afaan Oromoo: https://t.me/BusinessAcadamy/647