Published: 20th Nov 2024
By: Value Research
Net profits might not always tell the full story of a company’s financial health. Using other profit measures, in addition, can give a clearer view of a company's true performance. We explain how in the next slides:
A company reports different types of profits, like operating profit, profit before exceptional items and tax, and net profit. Each serves a unique purpose and gives insight into specific aspects of a company's finances.
Operating profit (or EBIT) reflects the company's core business performance. It is calculated by subtracting operational expenses from revenue. It is arrived at before accounting for other income, taxes and interest.
It further takes into account the non-core activities. You calculate it by adding non-operating income (like interest on investments) to operating profit minus finance costs, before accounting for tax and rare, one-time costs or gains.
Net profit is the final profit figure after considering all expenses, including exceptional items and taxes. It’s essential, but it can sometimes be skewed by large, one-time costs or gains, making it crucial to look beyond just this figure.
Net profits can fluctuate due to exceptional items or taxes. This is why operating profit, and profit before exceptional items often reveal more about a company’s core strength and profitability.
In FY20, Bharti Airtel reported a massive net loss due to finance costs, and exceptional items. However, its operating profit revealed another picture. Check this in detail from our story. Click the link below.
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