How to Read Financial, Profit & Loss Statement of a Company – Stocks for Beginners | EP 01 | Groww #Finance

While investing, it is said many times In fact, I have told you many times While investing you should choose a company You should look at its fundamentals and invest for the longer horizon Now the most important question comes, how can I see the fundamentals of a company How can I see the

fundamentals of a company and then choose How this company is fundamentally Can this perform well in the coming time or not Because of which a lot of people had demanded for us to bring about an educational series In which we should teach you how we can see the fundamentals of a company How we can

read different fundamental reports Apart from this what are the relevant ratios, using which You can decide that the company you want to invest in If that company will perform well in the coming time or not I, Jagdeep Singh, welcome you to the Groww channel Today we have brought the first

CashNews.co of the educational series In which we are going to talk about how you can see the Income statement of any company So in the first CashNews.co we are mainly going to talk about the Income statement So if we talk about Income statement

which we also call Profit and loss statement That tells us how a company, in the past quarter Or in the past financial year, how it performed This tells us that if a company made sales, what were its expenses And after that what were the company’s Profits So

this performance becomes very important if we want to invest in any company And these performances are known by the Profit and loss statements So it is very important for us to know how to look at the Profit and loss statement So now I will go to the

Profit and loss statement So to look at the Profit and loss statement, the first thing that you get in the statement That is Revenue So Revenue tells the amount of sales a company has made in the past quarter or in the past

financial year So topline, which we also call Revenue This tells us the amount the company sold goods at The sales the company made, for the past quarters Or for the financial years you’re looking at the data for So at the top is Revenue After

Revenue comes cost of goods sold Which we also call expense So in the Profit and loss statement, whenever the company sells a product Consider if I talk about a company that makes pens The company sold Rs 100 worth products in the past 3 months or past quarter Its

Revenue becomes Rs 100 But now the topic comes of cost of goods sold Which we also call expense So for this it is very important that if the company sold products for Rs 100 What was the expense of the company for selling Rs 100 worth goods Now consider that the company’s

expense was Rs 50 So if I talk about this important number, there was a Rs 100 sales Out of that there was a Rs 50 expense Which we also call cost of goods sold Apart from this there are other expense as well Which is very important for a company and its operations Like there is a very important

cost, employee cost Apart from this there are many important expenses Which are used to run the company’s operations So all these expense come under cost of goods sold and under other expenses Now after removing the expenses, consider the pen selling company I was talking about The company

made a sale of Rs 100 And the company’s expenses was Rs 50 Now the Profit that comes out after removing the sales and expenses That comes out to be Rs 50 Which we call Operating Profit So you get operating Profit when you remove the expenses

from the sales of a company But here it is very important You have to remove only those expense which are used in the company’s operations If the company makes pens So you can only remove those expenses which are used in making pens So after removing this Rs 50, if the company is left with Rs

50 That is their Operating Profit Now the topic comes of a very important ratio which we call operating Profit margin So operating Profit margin tells us that What has the company’s operating margin been Like the case I told you now That out

of Rs 50, consider that the company’s expense was Rs 50 The company has RS 50 left The company’s operating Profit margin comes out as 50% So here, whenever we talk about operating Profit margin You have to compare the company’s operating

Profit margin of that quarter With the previous quarter If you are talking about one year You have to compare the operating Profit margin to the previous year Because operating Profit margin tells you how efficiently the company is utilising its

resources And if a company’s operating Profit margin is increasing very well There has been an efficiency in a company’s operations They have started using their resources very well So the first part I explained to you was about operations This tells you about the

company’s operations But if I go below a company’s operating Profit margin You get to see another header in the Profit and loss statement Which we call interest And which we also call interest expense So what is this? Now consider that the company I was

talking about whose sales were of Rs 100 Now consider that the company had taken some Debt That company had borrowed money from an institution And they had borrowed a Debt of Rs 1000 On that, the company, in every quarter Consider that they have to pay a 10%

interest rate 10% of Rs 1000 is Rs 100 So that Rs 100 is the company’s interest expense So higher the Debt the company has taken the interest expense will be slightly higher And lower the Debt taken Lower will be the interest expense Now consider that a

company has taken 0 Debt They have no interest expense to pay Now I will come back to that case The company’s sale was Rs 100 and its operating Profit was Rs 50 Now its interest is Rs 10 So this Rs 10 gets removed from its Profit So interest

takes down a company’s Profit in its Profit and loss statement Higher the Debt, higher the interest they have to pay That much lower will the company’s Profit go So whenever you research about any company, look

carefully Whether its Debt isn’t continuously increasing If the Debt increases, the company will be levered Apart from this, the company’s Profit and loss statement In that its Profit will also be impacted After

incterest I will now talk about depreciation Now you get to see depreciation in every Profit and loss statement The company whose physical Assets are more Now the question comes, what is depreciation? So if I tell you about depreciation in technical terms There is

a non cash expense Now what does this mean Now consider that the company I was talking about, they have Assets, they have machines Using which, they made pens Now consider that the company bought those machines at Rs 100 The company bought those machines at Rs 100 and the life of

the machines was 10 years Now there are different ways to remove depreciation here I will talk in a very simple way The machines that the company bought, its life was only ten years Now the example the company bought the machines for Rs 100 and its life was 10 years So consider that ever year its

value will go down by Rs 10 Because of which after ten years, its value will become Rs 0 Now in this case, the value which goes down by Rs 10, is what we call depreciation So, depreciation in simple terms The Assets of the company By what percentage has that value been depreciated

And the percentage by which it depreciates We write that in the Profit and loss statement And we minus that from the Profit But this is called non sash expenses because For this the company does not have to pay cash This is just a notional loss Which the company

recognizes in its Profit and loss statement Now consider that the case I was explaining this to you There was a sale of Rs 100, Rs 50 was the expense and Rs 50 was left And out of Rs 50, 10 was the interest loss The Profit left is Rs 40 Out of Rs 40, Rs 10 is its

depreciation Now what is left is Rs 30 After removing all this, the company’s expenses left is Rs 30 But after this comes a very important thing Which we call other Income Now what is other Income Now consider there is a pen making company, its main

Incomes comes from making pens But consider that this consider Sold some of their Assets Which they bought at Rs 100 but now they Sold it at Rs 110 Their Income was of Rs 10 The Rs 10 Income will come in other

Income Because that Income doesn’t come from the company’s core Income So investors have to pay a lot of attention here Many people look at the company’s net Profit and say that the company’s

Profit is increasing every year So this company is performing well But whenever you invest in any company, you invest by looking at its core business not its Profit So if its net Profit is increasing You have to see the part the other

Income plays in its net Profit Because many times it is possible that the company is facing losses from its core business But its Profit is coming from other business which we call other Income So if its Profit is

not coming from its core business but from other Income It is a red flag on which you have to pay attention You should look further and investigate So I will go back to the case of pens So if the company’s other Income was Rs 10, we will add it to the

remaining Profit of Rs 30 And the company’s Income comes out which we call Profit before tax Because the company has not paid Taxes yet So the PBT comes out to be Rs 40 Now the topic comes of tax The tax the company has to

pay Now consider that the company pays a 25% tax So from Rs 40, if I remove a 25% tax They have to pay a tax of Rs 10 So after paying the tax, the Rs 30 left with the company That is the company’s net Profit So here, it is very important for every investor You should see from

the top to bottom How the company has performed in every step If you have chosen a company in which you are planning to invest If you have to see its operational efficiency Look at the operating Profit margin That should keep in increasing After that you should see how its interest

cost is Whether the interest cost is increasing continuously If it is increasing, where is the company using that Debt If the company is paying the Debt back, its interest cost should be less After that you should look at the depreciation So depreciation becomes

important for another theory So as I told you there are many way to recognize depreciation Now consider that the company knows that this time, its business is not going to do well And its net Profit is going to be less So many times companies show their depreciation to be lesser

Because of which their net Profit increases So you should pay attention to all these things And then you should see how the company’s net Profit turns out to be So if you look at all these things carefully It means that you have glanced through the

Profit and loss statement We will talk about this in detail in the coming CashNews.cos Because apart from this, in every company’s case There can be different headers Like in the case of banks, there is no cost of goods sold There is cost of financing Because the bank has to

take money which they have to lend further But if you go into this hierarchy and look further You will get an idea, whether it is a bank or a financial institution Or it is a manufacturing company How its Profit and loss statement works So pay attention to the basic things

Investigate a little on every step And if you see a red flag anywhere Read its annual report How you can read the annual report, we will cover in the coming CashNews.cos of this series So this was the first CashNews.co of our series If you liked this CashNews.co, press the like button You can

comment down below and ask us any question regarding the Profit and loss statement So that we can clear your doubts So this was the first CashNews.co we brought out In the coming time, we will be making very detailed CashNews.cos So that your educational purpose can be served And

you can find out how to do a fundamental research So if you haven’t yet subscribed to the Groww channel then please subscribe Because we put 3-4 CashNews.cos on this channel every week on financial knowledge Which can help a lot for you to become a good and an intelligent investor So like,

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