[aaykarbhavan] profit and loss account

 

Profit and Loss Account (P&L Account) also called the Income Statement shows the revenue earned, the expenses incurred and the resultant profit for a company over a particular period of time, such as a financial year. So, what heads, besides the usual profit numbers, should you look at in the P&L Account?

EXPENSES

To start with you could look at the items under the 'Expenses' head. While for a manufacturing company, raw material cost would be a major expense, for an IT firm it would be employee cost and for an airline, a chunk of its expenditure would be on fuel.

During FY12, raw material cost, the largest expense item for JSW Steel was 64.7 per cent of net sales. With demand for coking coal, a key input, being met largely through imports, global pricing trends call the shots. When it comes to iron ore prices, the Chinese demand is an important factor. More recently, the ban on mining in some states has impacted domestic supplies. Rising input costs can impact margins in the steel industry when it's faced with sluggish demand.

Employee benefits (54.4 per cent of net sales) have been the largest expense for Infosys. Any salary hike would push up this cost component for the IT major.

For Jet Airways, it has been fuel cost (46.6 per cent of net sales). Aviation Turbine Fuel (ATF) prices which move in tandem with crude oil import prices are a crucial determining factor for margins. ATF is also subject to a high level of taxes.

FINANCE COST

You could next look at the finance cost. JSW Steel's and Jet Airways' finance costs during FY12 constitute 4.2 per cent and 6 per cent of their respective net sales.

OTHER EXPENSES

Another item is 'other expenses'. If substantial, go through the notes to the P&L Account for a detailed break-up. For each of these companies, 'other expenses' is the second largest contributor to total cost and so we need to see what its constituents are. For JSW Steel, it's power and fuel, stores and spares carriage and freight that are the major 'other expenses'. Aircraft rentals, insurance, maintenance and loss on foreign currency transactions are the larger ones for Jet. For Infosys, it is travel expenses and 'other expenses' - office maintenance, rent and power and fuel.

EXCEPTIONAL ITEMS

'Exceptional items' is yet another thing to be looked at in the P&L Account. These are infrequent items such as disposal of assets, winding up of operations, forex loss/gain, litigation settlements that may arise only in some particular years. But they can swing the profit numbers one way or the other. Jet Airways' loss during FY12 is lower about11 per cent on account of exceptional item – contribution receivable from lessors. For JSW Steel, Profit before Tax (PBT) is down about 29 per cent on account of forex losses.

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CA Ramachandran Mahadevan,M.Com.,F.C.A.,

I-708,Mantri Tranquil,Subramanyapura Post,

Bangalore-560061

Karnataka,India.

+91 80 42011024

 

 

You never achieve success unless you like what you are doing."

 

--Dale Carnegie,

American self-help author and lecturer