5.3 Income statements

PKN manufactures glass. Contributing to sustainable development is important to the business. PKN has factories in 30 countries. It has 27 000 employees. The Managing Director knows PKN has benefited from globalisation. She plans to expand the business using external growth. Retained profit is one source of finance a business could use to fund expansion. Some of PKN’s directors are concerned about possible diseconomies of scale as the business grows. (e) Do you think the advantages of using retained profits to fund business expansion are greater than the disadvantages? Justify your answer. [6]

FLD is a furniture retailer. It has 460 shops and 20 000 employees. Internal recruitment is used when recruiting new shop managers. The Managing Director wants to know whether job rotation is the best method of motivation for a large business to use. The Finance Director is reviewing FLD’s income statement. An extract is shown in Table 2.1. She is concerned that FLD’s gross profit is decreasing.

a) Define ‘profit’. [2]

b) Identify two expenses a business might have. [2] Expense 1: Expense 2: (c) Outline two possible reasons why FLD’s gross profit is decreasing. [4] Reason 1: Reason 2: