ABSTRACT
Sales are usually the largest item in a profit and loss account of most organizations.
Sales figures provide a good indication of the activity level and capacity of the
organization in question.
In recent years, it has become common for investors in certain industries and start-
up organizations to focus on sales growth and acceleration as a reflection of an
organization’s potential. It was a typical phenomenon in 1999-2000 when the
organizations with exposure to the Internet were valued at multiples of their sales
regardless of their profits or losses. While these dot-com organizations reported
recurring losses, the market believed that as long as sales revenue continued to grow
rapidly, profits would materialize eventually … until the bubble burst in the spring of
Appearing on the first row in the profit and loss account (P&L), the sales figure
tends to attract a significant level of attention from the readers of financial statements
and has a direct impact on the net profit. Therefore, it is often regarded as one of the
most sensitive reported amounts as far as the financial statements are concerned.
