What is Profit&Loss (P&L) Statement ?

Image
Definition : Also known as Income statement, is a financial statement which shows expenses and revenue of a company during a particular period, usually a fiscal quarter or year.
Read : What Is Balance Sheet ?
Income Statement helps to convey the status of a company i.e. Company is making profit or suffering losses. It is very important to read Income Statement of a company before investing, both of recent and past years.
Note : Revenue : Total amount received from sales of goods and services. Expenses : Total amount spend in producing final product or service.
Structure of P&L Statement  Income Statement is divided into Five main section - Net sales, Cost of Goods Sold, Gross Margin, Operating Expenses and Net Profit Before & After Income Tax (Or Net Loss in case of Loss).
Net Sales : It is the sum of Gross sales excluding its returns, allowances and discounts.Cost Of Goods Sold : Amount of money used to produce the final product. For example cost of inventory, merchandise purchased…

10 Terms You Need To Know Before Reading Balance Sheet


For Stock Analysis you need to read the Balance Sheet of a company. But before reading balance sheet you need understand some basic terms related to balance sheet. Here, I will explain every term in basic language that make you understand very easily.


Depreciation


Definition : It is the decline in the value of money or assets with time. 

Example : If you purchase a car at the price of one million. After 3 year that car will not remain with the same value. As time passes value of goods increases while of money decreases. Another example, Your grand father used to buy full bag of fruits and vegetables in just ₹100, but now days you will only get fee kilos of fruits and vegetables in ₹100. And this is what depreciation is.

Depreciation has exception. Price of Land or property(real state) which is a asset, always increases with time. 

Formula : 
  • Depreciation : cost - salvage value / no. of useful year


Salvage Value

Definition : Salvage value is the value of goods after its useful year.

Example : If the useful year of that car is 10 years, then salvage value will be the value of that same car after 10 years.

Tangible Assets

Tangible means anything  that can be measured. And similarly tangible assets is company’s assets that can be measured For e.g. equipment, machinery, goods, cash, etc. Manufacturing companies, automobile, heavy asset companies are largely based on tangible assets.


Intangible Assets

Intangible means things that cannot be measured. And similarly intangible assets is company’s assets which cannot be measured For e.g. patents, goodwill, intellectual property, etc. IT companies are heavily based on intangible assets.

Goodwill

Definition : Goodwill is the real market value of a company minus net worth of that company. 

Example : If company A plans to buy a company B. The net worth of company B is ₹50 crore. But company A purchased the company B in ₹70 crore. The difference of ₹20 crore is the goodwill of company B. 

It is an intangible asset. Goodwill is generated by various factors like building good reputation in market. Also Company with good relationship with their employees and co- workers also helps to generate goodwill for that company. There are various other factors which helps companies to generate goodwill.

Amortization

Depreciation for Intangible assets is specified as amortization. Same method of depreciation is applied to calculate amortization.

Inventories

Raw materials and finished goods is the inventories of a company. There are three types of inventories : 

  • Raw material inventories
  • Work-in-progress inventory
  • Finished good inventory

Bad Debt

Companies sell goods on credit (loan) and a fix time period is assigned to they buyers for payment.  But sometime some vendors do not pay money on given time, such credit called bad debts. It is used to calculate Trade Receivables (TR) 

  • TR = credit value - Bad debt

Reserves and Surplus

It is the total profit left after paying Dividends and Share premium value .

Share Premium

Difference between stock’s selling price and face value is considered as share premium of a stock .

Example : If the face value of a stock is ₹10 but company sold per share at ₹90, then share premium will be ₹80 (₹90 - ₹10).

Current and Non-current

Current refers to period of one year or less than one year whereas non-current is the period more than one year.

Example : Current assets is the asset which remain for less than one year in a company whereas non-current assets of a company is the asset which will remain for more than one year.

Check Out : Key Financial Ratios

Comments

Popular posts from this blog

Use These Eight Steps For Easy And Time Saving Stock Analysis

What Is Balance Sheet ?