The Profit before tax
It refers to the net operating income after deducting operating expenses but before deducting taxes and interest. Proceeding further on the P&L statement we can see that ARBL has mentioned their profit before tax and exceptional item numbers.
Simply put the profit before tax (PBT) is:
Profit before Tax = Total Revenues – Total Operating Expenses
= Rs.3482 – Rs.2941.6
=Rs.540.5
However there seems to be an exceptional item/ extraordinary item of Rs.3.8 Crs, which needs to be deducted. Exceptional items/ extraordinary items are expenses occurring at one odd time for the company and the company does not foresee this as a recurring expense. Hence they treat it separately on the P&L statement.
Hence profit before tax and extraordinary items will be:
= 540.5 – 3.88
= Rs.536.6 Crs
The snapshot below (extract from P&L) shows the PBT(Profit Before Tax) of ARBL:
Net Profit after tax
The net operating profit after tax is defined as the company’s operating profit after deducting its tax liability. We are now looking into the last part of the P&L statement, which is the profit after tax. This is also called the bottom line of the P&L statement.
As you can see from the snapshot above, to arrive at the profit after tax (PAT) we need to deduct all the applicable tax expenses from the PBT. Current tax is the corporate tax applicable for the given year. This stands at Rs.158 Crs. Besides this, there are other taxes that the company has paid. All taxes together total upto Rs.169.21 Crs. Deducting the tax amount from the PBT of Rs.536.6 gives us the profit after tax (PAT) at Rs.367.4 Crs.
Hence Net PAT = PBT – Applicable taxes.
The last line in the P&L statement talks about basic and diluted earnings per share. The EPS is one of the most frequently used statistics in financial analysis. EPS also serves as a means to assess the stewardship and management role performed by the company directors and managers. The earnings per share (EPS) is a very sacred number which indicates how much the company is earning per face value of the ordinary share. It appears that ARBL is earning Rs.21.51 per share. The detailed calculation is as shown below:
The company indicates that there are 17,08,12,500 shares outstanding in the market. Dividing the total profit after tax number by the outstanding number of shares, we can arrive at the earnings per share number. In this case:
Rs.367.4 Crs divided by 17,08,12,500 yields Rs.21.5 per share.
Conclusion
Now that we have gone through all the line items in the P&L statement let us relook at it in its entirety.
Hopefully, the statement above should look more meaningful to you by now. Remember almost all line items in the P&L statement will have an associated note. You can always look into the notes to seek greater clarity. Also at this stage we have just understood how to read the P&L statement, but we still need to analyze what the numbers mean. We will do this when we take up the financial ratios. Also, the P&L statement is very closely connected with the other two financial statements i.e the balance sheet and the cash flow statement. We will explore these connections at a later stage.
Key takeaways from this chapter:
The expense part of the P&L statement contains information on all the expenses incurred by the company during the financial year
Each expense can be studied with reference to a note which you can explore for further information
Depreciation and amortization is way of spreading the cost of an asset over its useful life
Finance cost is the cost of interest and other charges paid when the company borrows money for its capital expenditure.
PBT = Total Revenue – Total Expense – Exceptional items (if any)
Net PAT = PBT – applicable taxes
EPS reflects the earning capacity of a company on a per share basis. Earnings are profit after tax and preferred dividends.
EPS = PAT / Total number of outstanding ordinary shares
Comments
Post a Comment