Skip to main content

Quarterly results: 5 faces of profit

It's that time of the year when quarterly reports flood mailboxes and dailies, and the words 'earnings' and 'profit' jump out from all over. But which profit should you consider to evaluate a company? What is the utility of profitability measures? Here's a guide to understanding profits.

1) Gross Profit

What is it? It is the amount earned from sale of products after deducting production costs.

What it does: Signals efficiency with which a company is making money. Indicates how much mark-up a company can generate on its sales.

Other clues: A company with rising gross profit means it can command premium prices. This also implies cost efficiency, making the company highly competitive.

Black spots: Works as a primary indicator. Gross profit is similar to an incomplete story. To know more about a company, you have to read other signs.

2) Ebitda

What is it? It means earnings (or profit) before interest, taxes, depreciation and amortisation. It is calculated by subtracting operating, general, administrative and marketing expenses from gross profits.

What it does : Measures profitability. Say, you are having trouble deciding between companies, it is the best tool to compare them because it weeds out the effects of financing and accounting decisions.

Other clues: You can also compare sectors.

Black spots: Ebitda is not a good measure of cash flows. Companies may use it to dress up earnings.

3) Ebit, or operating profit

What is it? Ebit is earnings before interest and taxes. It is calculated by deducting depreciation and amortisation charges from Ebitda.

What it does: Measures a company's earning capacity. An effective comparison tool. Examines performance of companies by negating the effects of financing and taxes. It is useful for shareholders and creditors.

Black spots: Suffers from similar problems as Ebitda—it ignores unavoidable cash outflows due to interest and taxes.

4) EBT

What is it? EBT is earnings (or profit) before taxes and is calculated by deducting interest expenses from Ebit.

What it does: Compares companies in different tax jurisdictions. It is useful for comparing companies within a sector. EBT also shows how well a company is using its borrowings to enhance its return on equity.

Black spots: Again, doesn't give a wholesome picture. Discounting the tax effect is unwise. Say, investors have to choose between two Indian companies. Company A operates in India and Company B has most of its operations in the US. A is posting record profits and B's earnings per share are marginally lower.

Investors would be tempted to pick Company A, but what if corporate tax in India is about to be raised? Then, Company A's profit could fall below Company B's.

5) EAT, or net profit

What is it? Earnings after tax, or net profit, is the most common way to calculate a company's profit. EAT is the company's profit after deducting manufacturing and operating expenses, depreciation, interest and tax.

What it does: Tells the story of a company's performance over a period. Handy tool for equity shareholders as it is the money left after a company makes all payments.

Other clues: EAT helps shareholders analyse the earnings of a company on a per-share basis. Equity dividends are also based on EAT.

 

 

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now