Profit & Loss Account
Prepared by:
Khagesh Chitlangiya (06)
Jagdeep Dahiya (07)
Deep Shikha (08)
Suyash Gupta (09)
Siddharth Iyer (10)
Objective of the presentation
Meaning of P&L a/c
Basic format of a P&L a/c
Explanation of contents & different items
To compare income statements of two
companies in the two wheeler industry,
namely HERO HONDA & BAJAJ AUTO
Introduction
Also known as income statement
Integral part of financial statement
Report of the financial transactions of entity
for a particular period
Calculation of income
Appropriation of income
Meaning
For a layman - tool to calculate profit or loss
of an entity
For an analyst – detailed statement of the
various types of income and expense
Operating incomes & expenses
Non-operating incomes & expenses
Extraordinary items
Appropriation
The Income Statement
Revenues Shows the results
Assets (cash or AR) of a company’s
created through operations over a
business operations period of time.
Expenses • What goods were sold
Assets (cash or AP) or services performed
consumed through that provided revenue
business operations for the company?
Net Income or (Net
• What costs were
Loss) incurred in normal
Revenues - Expenses operations to generate
these revenues?
AR:A/c’s receivable; AP:A/c’s payable
• What are the earnings
or company profit?
Purpose
Investors:
Existing: to know whether to continue with
investment in the same stock
New: to analyze whether the past performance
will be repeated
Creditors:
Short term: if entity would be able to pay the
interest
Long term: if the entity would be able to repay
the principle
Purpose
Financial institutions:
they will look for the
Earnings per share (EPS)
Growth in operating margins
Government:
To discern if the company is evading taxes
To ensure compliance with government norms
Limitations
Qualitative aspects are not accounted for
Somenumbers depend on accounting
methods used
Somenumbers depend on judgments and
estimates
Basic Accounting Concepts
MatchingConcept: only current year’s
income and expenses are matched
Accrual Concepts: incomes or expenses
identifiable with the current year but still not
paid or received
Going Concern Concept: the company’s
future existence is assumed
Outline of P&L A/c
(+) Income:
Sales turnover
Other income
Stock adjustments
(-) Expenditure (operating)
Raw-material cost
Direct expenses/ manufacturing expense
Office and administration expenses
Selling and distribution expenses
(=) Operating profit
Outline of P&L A/c contd..
(=) Operating Profit (EBIDT)
(-) Interest
(=) Gross Profit (EBDT)
(-) Depreciation
(=) Profit before tax (PBT)
(-) tax
(-) deferred tax
(=) Profit after tax (PAT)
(+/-) Extra-ordinary items
(=) Adjusted net profit
Outline of P&L A/c contd..
Adjusted net profit
(+) P & L Balance brought forward
Profits available for Appropriations
Dividends (Preference)
Dividends (equity)
Transfer to reserves
Balance carried to balance sheet.
Hero Honda - Profit and Loss Ac c ount
Year Mar 07(12) Mar 06(12) Mar 05(12) Mar 04(12) Mar 03(12)
INCOME :
Sales Turnover + 11,542.04 10,086.16 8,596.81 6,747.35 5,101.71
Excise Duty 1,647.52 1,374.90 1,178.22 916.33 4.15
Net Sales 9,894.52 8,711.26 7,418.59 5,831.02 5,097.56
Other Income + 234.07 167.6 149.42 180.86 108.15
Stock Adjustments + 3.2 14.97 14.95 -21.59 21.08
Total Incom e 10,131.79 8,893.83 7,582.96 5,990.29 5,226.79
EXPENDITURE :
Raw Materials + 7,176.47 6,067.27 5,214.57 4,009.02 3,491.85
Power & Fuel Cost+ 52.45 46.65 32.88 29.75 25.82
Employee Cost + 299.03 259.47 215.29 185.95 163.97
Other Manufacturing Expenses + 97.16 93.56 75.84 59.24 50.18
Selling and Administration Expenses + 857.17 716.72 562.81 419.75 391.02
Miscellaneous Expenses + 262.02 180.38 173.01 139.07 154.27
Less: Pre-operative Expenses Capitalised+ 0 0 0 0 0
Total Expenditure 8,744.30 7,364.05 6,274.40 4,842.78 4,277.11
Operating Prof it 1,387.49 1,529.78 1,308.56 1,147.51 949.68
Interest + 1.61 2.92 1.93 1.72 1.73
Gross Prof it 1,385.88 1,526.86 1,306.63 1,145.79 947.95
Depreciation+ 139.78 114.62 89.38 73.33 63.39
Profit Bef ore Tax 1,246.10 1,412.24 1,217.25 1,072.46 884.56
Tax+ 378.79 423.02 395.22 331.07 298.19
Deferred Tax+ 9.42 17.88 11.56 13.07 5.61
Reported Net Profit 857.89 971.34 810.47 728.32 580.76
Extraordinary Items + 80.78 74.79 64.71 77.31 45.38
Adjusted Net Prof it 777.11 896.55 745.76 651.01 535.38
Adjst. below Net Profit + 0 0 0 0 0
P & L Balance brought f orw ard 1,224.05 808.1 538.53 335.75 220.48
Statutory Appropriations + 0 0 0 0 0
Appropriations + 487.16 555.39 540.9 525.54 465.49
P & L Balance carried dow n 1,594.78 1,224.05 808.1 538.53 335.75
Dividend 339.47 399.38 399.38 399.38 359.44
Preference Dividend 0 0 0 0 0
Equity Dividend % 850 1,000.00 1,000.00 1,000.00 900
Earnings Per Share-Unit Curr 40.07 45.84 37.75 33.91 26.78
Book Value-Unit Curr 123.69 100.62 74.78 57.03 43.12
Comparative Analysis
What to analyze ???
Analysis in terms of operational efficiency
Sales performance
Other incomes
Gross margin
EBIDT
Profitability
Hero Honda
Comparative Income Statement
Particulars 2006-07 2005-06 % change
Sales turnover 9,894.52 8,711.26 13.58%
Other income 234.07 167.60 39.66%
Gross income 10,131.79 8,893.83 13.92%
Operating costs 8,744.30 7,364.05 18.74%
Operating profit 1,387.49 1,529.78 -9.30%
PAT 857.89 971.34 -11.68%
Appropriations 487.16 555.39 -12.29%
Hero Honda:5 year
Comparison
12,000.00
10,000.00
8,000.00
Crore Rs.
Total Income
6,000.00
Total Expenditure
4,000.00 Operating Profit
2,000.00
0.00
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04
05
06
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Bajaj Auto
Comparative Income Statement
Particulars 2006-07 2005-06 % change
Sales turnover 9,317.47 7,488.11 24.43%
Other income 751.71 617.24 21.79%
Gross income 10,068.28 8,154.36 23.47%
Operating costs 8,145.13 8,382.83 -2.84%
Operating profit 1,923.15 1,771.53 8.56%
PAT 1,727.55 1,580.19 9.33%
Appropriations 1,237.10 1,123.27 10.13%
Comparison: 2006-07
Comparative Income Statement
Particulars Bajaj Auto Hero Honda
Sales turnover 9,317.47 9,894.52
Other income 751.71 234.07
Gross income 10,068.28 10,131.79
Operating costs 8,145.13 8,744.30
Operating profit 1,923.15 1,387.49
PAT 1,727.55 857.89
Appropriations 1,237.10 487.16
Ratio Analysis
Hero Honda
Year 05-06
Operating Expense Ratio = 84.5%
Year 06-07
Operating Expense Ratio = 88.3%
Questions
Thank you
