馃攳
How to Read Financial, Profit & Loss Statement of a Company - Stocks for Beginners | EP 01 | Groww - YouTube
Channel: Groww
[0]
While investing, it is said many times
[2]
In fact, I have told you many times
[4]
While investing you should choose a company
[7]
You should look at its fundamentals and invest for the longer horizon
[11]
Now the most important question comes, how can I see the fundamentals of a company
[15]
How can I see the fundamentals of a company and then choose
[19]
How this company is fundamentally
[21]
Can this perform well in the coming time or not
[24]
Because of which a lot of people had demanded for us to bring about an educational series
[28]
In which we should teach you how we can see the fundamentals of a company
[32]
How we can read different fundamental reports
[34]
Apart from this what are the relevant ratios, using which
[38]
You can decide that the company you want to invest in
[41]
If that company will perform well in the coming time or not
[44]
I, Jagdeep Singh, welcome you to the Groww channel
[46]
Today we have brought the first video of the educational series
[49]
In which we are going to talk about how you can see the income statement of any company
[54]
So in the first video we are mainly going to talk about the income statement
[62]
So if we talk about income statement which we also call profit and loss statement
[67]
That tells us how a company, in the past quarter
[70]
Or in the past financial year, how it performed
[72]
This tells us that if a company made sales, what were its expenses
[76]
And after that what were the company's profits
[78]
So this performance becomes very important if we want to invest in any company
[83]
And these performances are known by the profit and loss statements
[87]
So it is very important for us to know how to look at the profit and loss statement
[91]
So now I will go to the profit and loss statement
[93]
So to look at the profit and loss statement, the first thing that you get in the statement
[98]
That is revenue
[99]
So revenue tells the amount of sales a company has made in the past quarter or in the past financial year
[106]
So topline, which we also call revenue
[110]
This tells us the amount the company sold goods at
[113]
The sales the company made, for the past quarters
[116]
Or for the financial years you're looking at the data for
[119]
So at the top is revenue
[120]
After revenue comes cost of goods sold
[123]
Which we also call expense
[125]
So in the profit and loss statement, whenever the company sells a product
[129]
Consider if I talk about a company that makes pens
[131]
The company sold Rs 100 worth products in the past 3 months or past quarter
[135]
Its revenue becomes Rs 100
[137]
But now the topic comes of cost of goods sold
[139]
Which we also call expense
[141]
So for this it is very important that if the company sold products for Rs 100
[144]
What was the expense of the company for selling Rs 100 worth goods
[147]
Now consider that the company's expense was Rs 50
[150]
So if I talk about this important number, there was a Rs 100 sales
[154]
Out of that there was a Rs 50 expense
[156]
Which we also call cost of goods sold
[158]
Apart from this there are other expense as well
[160]
Which is very important for a company and its operations
[163]
Like there is a very important cost, employee cost
[166]
Apart from this there are many important expenses
[168]
Which are used to run the company's operations
[171]
So all these expense come under cost of goods sold and under other expenses
[175]
Now after removing the expenses, consider the pen selling company I was talking about
[179]
The company made a sale of Rs 100
[182]
And the company's expenses was Rs 50
[184]
Now the profit that comes out after removing the sales and expenses
[188]
That comes out to be Rs 50
[189]
Which we call Operating Profit
[191]
So you get operating profit when you remove the expenses from the sales of a company
[196]
But here it is very important
[198]
You have to remove only those expense which are used in the company's operations
[202]
If the company makes pens
[204]
So you can only remove those expenses which are used in making pens
[208]
So after removing this Rs 50, if the company is left with Rs 50
[211]
That is their Operating profit
[213]
Now the topic comes of a very important ratio which we call operating profit margin
[217]
So operating profit margin tells us that
[219]
What has the company's operating margin been
[222]
Like the case I told you now
[224]
That out of Rs 50, consider that the company's expense was Rs 50
[227]
The company has RS 50 left
[228]
The company's operating profit margin comes out as 50%
[232]
So here, whenever we talk about operating profit margin
[235]
You have to compare the company's operating profit margin of that quarter
[239]
With the previous quarter
[241]
If you are talking about one year
[242]
You have to compare the operating profit margin to the previous year
[245]
Because operating profit margin tells you how efficiently the company is utilising its resources
[251]
And if a company's operating profit margin is increasing very well
[255]
There has been an efficiency in a company's operations
[258]
They have started using their resources very well
[261]
So the first part I explained to you was about operations
[265]
This tells you about the company's operations
[268]
But if I go below a company's operating profit margin
[270]
You get to see another header in the profit and loss statement
[274]
Which we call interest
[275]
And which we also call interest expense
[278]
So what is this?
[279]
Now consider that the company I was talking about whose sales were of Rs 100
[283]
Now consider that the company had taken some debt
[285]
That company had borrowed money from an institution
[288]
And they had borrowed a debt of Rs 1000
[291]
On that, the company, in every quarter
[293]
Consider that they have to pay a 10% interest rate
[295]
10% of Rs 1000 is Rs 100
[299]
So that Rs 100 is the company's interest expense
[302]
So higher the debt the company has taken the interest expense will be slightly higher
[307]
And lower the debt taken
[308]
Lower will be the interest expense
[310]
Now consider that a company has taken 0 debt
[313]
They have no interest expense to pay
[316]
Now I will come back to that case
[318]
The company's sale was Rs 100 and its operating profit was Rs 50
[323]
Now its interest is Rs 10
[325]
So this Rs 10 gets removed from its profit
[327]
So interest takes down a company's profit in its profit and loss statement
[332]
Higher the debt, higher the interest they have to pay
[335]
That much lower will the company's profit go
[338]
So whenever you research about any company, look carefully
[341]
Whether its debt isn't continuously increasing
[344]
If the debt increases, the company will be levered
[347]
Apart from this, the company's profit and loss statement
[349]
In that its profit will also be impacted
[351]
After incterest I will now talk about depreciation
[354]
Now you get to see depreciation in every profit and loss statement
[357]
The company whose physical assets are more
[360]
Now the question comes, what is depreciation?
[362]
So if I tell you about depreciation in technical terms
[366]
There is a non cash expense
[368]
Now what does this mean
[369]
Now consider that the company I was talking about, they have assets, they have machines
[374]
Using which, they made pens
[376]
Now consider that the company bought those machines at Rs 100
[379]
The company bought those machines at Rs 100 and the life of the machines was 10 years
[384]
Now there are different ways to remove depreciation here
[387]
I will talk in a very simple way
[390]
The machines that the company bought, its life was only ten years
[393]
Now the example the company bought the machines for Rs 100 and its life was 10 years
[399]
So consider that ever year its value will go down by Rs 10
[402]
Because of which after ten years, its value will become Rs 0
[405]
Now in this case, the value which goes down by Rs 10, is what we call depreciation
[410]
So, depreciation in simple terms
[412]
The assets of the company
[413]
By what percentage has that value been depreciated
[416]
And the percentage by which it depreciates
[418]
We write that in the profit and loss statement
[420]
And we minus that from the profit
[422]
But this is called non sash expenses because
[425]
For this the company does not have to pay cash
[427]
This is just a notional loss
[429]
Which the company recognizes in its profit and loss statement
[433]
Now consider that the case I was explaining this to you
[435]
There was a sale of Rs 100, Rs 50 was the expense and Rs 50 was left
[438]
And out of Rs 50, 10 was the interest loss
[442]
The profit left is Rs 40
[443]
Out of Rs 40, Rs 10 is its depreciation
[447]
Now what is left is Rs 30
[449]
After removing all this, the company's expenses left is Rs 30
[453]
But after this comes a very important thing
[455]
Which we call other income
[457]
Now what is other income
[459]
Now consider there is a pen making company, its main incomes comes from making pens
[463]
But consider that this consider
[465]
Sold some of their assets
[467]
Which they bought at Rs 100 but now they
[469]
Sold it at Rs 110
[471]
Their income was of Rs 10
[472]
The Rs 10 income will come in other income
[475]
Because that income doesn't come from the company's core income
[478]
So investors have to pay a lot of attention here
[481]
Many people look at the company's net profit and say that the company's profit is increasing every year
[486]
So this company is performing well
[488]
But whenever you invest in any company, you invest by looking at its core business not its profit
[493]
So if its net profit is increasing
[495]
You have to see the part the other income plays in its net profit
[499]
Because many times it is possible that the company is facing losses from its core business
[502]
But its profit is coming from other business which we call other income
[506]
So if its profit is not coming from its core business but from other income
[509]
It is a red flag on which you have to pay attention
[512]
You should look further and investigate
[514]
So I will go back to the case of pens
[516]
So if the company's other income was Rs 10, we will add it to the remaining profit of Rs 30
[522]
And the company's income comes out which we call profit before tax
[526]
Because the company has not paid taxes yet
[528]
So the PBT comes out to be Rs 40
[531]
Now the topic comes of tax
[533]
The tax the company has to pay
[535]
Now consider that the company pays a 25% tax
[538]
So from Rs 40, if I remove a 25% tax
[541]
They have to pay a tax of Rs 10
[543]
So after paying the tax, the Rs 30 left with the company
[546]
That is the company's net profit
[548]
So here, it is very important for every investor
[551]
You should see from the top to bottom
[554]
How the company has performed in every step
[556]
If you have chosen a company in which you are planning to invest
[559]
If you have to see its operational efficiency
[562]
Look at the operating profit margin
[563]
That should keep in increasing
[565]
After that you should see how its interest cost is
[567]
Whether the interest cost is increasing continuously
[569]
If it is increasing, where is the company using that debt
[573]
If the company is paying the debt back, its interest cost should be less
[576]
After that you should look at the depreciation
[578]
So depreciation becomes important for another theory
[582]
So as I told you there are many way to recognize depreciation
[586]
Now consider that the company knows that this time, its business is not going to do well
[589]
And its net profit is going to be less
[591]
So many times companies show their depreciation to be lesser
[594]
Because of which their net profit increases
[596]
So you should pay attention to all these things
[599]
And then you should see how the company's net profit turns out to be
[602]
So if you look at all these things carefully
[605]
It means that you have glanced through the profit and loss statement
[608]
We will talk about this in detail in the coming videos
[611]
Because apart from this, in every company's case
[613]
There can be different headers
[614]
Like in the case of banks, there is no cost of goods sold
[617]
There is cost of financing
[619]
Because the bank has to take money which they have to lend further
[622]
But if you go into this hierarchy and look further
[625]
You will get an idea, whether it is a bank or a financial institution
[628]
Or it is a manufacturing company
[630]
How its profit and loss statement works
[633]
So pay attention to the basic things
[634]
Investigate a little on every step
[636]
And if you see a red flag anywhere
[638]
Read its annual report
[639]
How you can read the annual report, we will cover in the coming videos of this series
[643]
So this was the first video of our series
[645]
If you liked this video, press the like button
[647]
You can comment down below and ask us any question regarding the profit and loss statement
[651]
So that we can clear your doubts
[653]
So this was the first video we brought out
[655]
In the coming time, we will be making very detailed videos
[658]
So that your educational purpose can be served
[661]
And you can find out how to do a fundamental research
[664]
So if you haven't yet subscribed to the Groww channel then please subscribe
[669]
Because we put 3-4 videos on this channel every week on financial knowledge
[673]
Which can help a lot for you to become a good and an intelligent investor
[676]
So like, share and comment on the video, stay at home and stay safe
[680]
Stay safe, happy investing!
Most Recent Videos:
You can go back to the homepage right here: Homepage