LOSS

ACCOUNTI
PROFIT AND LOSS (PL)
GAINS OR LOSSES FROM BOTH NORMAL AND EXTRAORDINARY COMPANY OPERATIONS OVER A
PERIOD OF TIME

BALANCE -
CASHFION STATEMENT -
BALANCE
SHEET SHEET
STATEMENT -
311212027
- PROFITAND LOSS
31/12/2022
PL COVERS A PERIOD BETWEEN SUCCESSIVE BALANCE SHEETS

PURPOSE OF PL:
COMPARISON
TRANSPARENCY WITH STAKEHOLDERS
A KNOWLEDGEABLE
DEVELOP DECISION- MAKING PROCESS

STRUCTURE OF THE PLACCOUNT

REVENUE
-
OPERATING COSTS
KABOR, MATERIALS,OVERHEADS, ADMINISTRATION, SALES AND MARKETING)
>all ongoing expenses
that are not directly related to the products or services

- EBITDA
LEARNINGS BEFORE INTERESTS,TAXES, REPRECIATION, AMORTIZATIONS
-DEPRECIATION

-
AMORTIZATION

EBIT
LEARNINGS BEFORE INTERESTS, TAXES)
-

INTERESTS

= EBT
LEARNINGS BEFORE TAXES)
-
TAXES

= NET INCOME CONEARNINGS AFTER TAXES)

-
AIVIDENDS
=
RETAINED EARNINGS
REVENUE
THEY REFER VALUE
TO THE OF COMPANY'S SALES
A

OF GOODS AND SERVICES TO ITS CUSTOMERS

EVEN THOUGH A COMPANY'S "BOTTOM LINE" ITS NET INCOME) GETS MOST OF THE ATTENTION FROM
INVESTORS, THE "TOP LINE" IS WHERE THE REVENUE OR INCOME PROCESS BEGINS

REVENUES GROW BY INCREASING VOLUMES, RAISING PRICES, on IMPROVING PRODUCT MIX

ISELLING MORE HIGH-PRICED MEMS RATHER THAN LOW-PRICED ONES)

OPERATING COSTS

I
FOR A MANUFACTURER, THEY ARE THE EXPENSES INCURRED FOR RAW MATERIALS, LABOR AND

MANUFACTURING OVERHEAD USED THE PRODUCTION OF is

IN GOODS

FOR RETAILERS, THEY ARE THE PURCHASE COST OF MERCHANDISE

FOR
SERVICE FIRMS, THEY ARE THE COST OF SERVICES PRODUCED

OVERHEADS
ALL ONGOING EXPENSES THAT ARE NOT DIRECTLY RELATED TO THE PRODUCT OR

SERVICE BEING PRODUCED

INOT DIRECT MATERIALS AND DIRECT LABOR)
OVERHEAD ARE PAID REGARDLESS OF THE PRODUCTION VOLUME

( INSURANCE, UTILITIES, OFFICE SUPPLIES, SALARIES

RENT, TO HUMAN RESOURCES

I
DEPARTMENT
AND TO ACCOUNTING DEPARTMENT

EBITDA
EARNING BEFORE INTERESTS, TAXES, DEPRECIATION, AMORTIZATION

AN APPROMINATION OF THE CASH FLOW FROM TRADING ACTIVITIES OF THE FIRM

I
REVENUES- COSTS OF
RELATED INPUTS I
IMPORTANT BECAUSE:
SOME SUBSEQUENT ITEMS IN THE PLDON'T CORRESPOND TO REAL CASH FLOW IN THE PERIOD
(E.C. DEPRECIATION AND AMORTIZATION)
DISTORSIONS THAT CAN ARISE FROM ACCOUNTING POLICIES
EBITDA IS LARGELY FREEFROM
DEPRECIATION INDICATES HOW MUCH OF TANGIBLE ASSET'S VALUE
HAS BEEN USED UP IN THE PERIOD

AMORTIZATION IS THE WRITING DOWN OF CAPITAL EXPENSES FOR INTANGIBLE

ASSETS OVER THE PERIOD

ACCUMULATED DEPRECIATION AND AMORTIZATION REDUCE THE NET VALUATION

OF THE CORRESPONDING ASSETS

EBIT
EARNINGS BEFORE INTEREST AND TAXES

IT IS THE OPERATING PROFIT OF THE BUSINESS

IT IS OF ENORMOUS SIGNIFICANCE BECAUSE IT IS FROM EBIT THAT A FIRM GENERATES

RESOURCES TO PAY INTEREST TO BANKERS, TAX TO THE GOVERNMENT, DUIDENDS TO
SHAREHOLDERS

EBIT IS A MEASURE
OF THE COMPETITIVE ADVANTAGE COR DISADVANTAGE) THAT A FIRM HAS

IN ITS INDUSTRY, GIVEN A CERTAIN SIZE OF THE FIRM

INTEREST EXPENSES
THEY REFLECT THE COST OF BORROWING FROM FINANCIERS IBANKS, DEBTHOLDERS)
= INTEREST PAID ON VARIOUS FORMS SHORT- TERM
OF AND LONG-TERM LOANS

IMPORTANT!INTEREST IS NEVER PAID ON ACCOUNT PAYABLES

WHEN FIRMS ALSO HAVE INTEREST INCOME

1E.C. GAINS FROM TREASURY BONDS, STOCKS, OTHER INVESTMENTS

THEY REPORT NET INTERESTS
- NET INTEREST: DIFFERENCE BETWEEN
INTEREST EXPENSES AND

INTEREST INCOME

NET INTEREST
S INTEREST
INTEREST EXPENSES
INCOME
 EB/ PRE-TAX= INCOME
EARNINGS BEFORE PAYMENT OF TAXES

NUMEROUS AND DIVERSE TECHNIQUES ARE AVAILABLE TO COMPANIES TO AVOID

AND/OR MINIMIZE TAXES THAT AFFECT THEIR REPORTED INCOME

EBT RESULTING FROM THE PL IS NOT NECESSARILY THE SAME AS TAXABLE INCOME
,

BECAUSE TAX LAWS MAY FOLLOW RULES THAT ARE DIFFERENT FROM ACCOUNTING RULES

(E. G. METHODS FOR CALCULATING DEPRECIATION AND AMORTIZATION )

INCOME TAXES AN ESTIMATE /PREVISION) OF WHAT A COMPANY EXPECTS TO PAY

AS TAXES

NET INCOME THIS IS THE Bottom LINE WHICH IS THE MOST USED INDICATOR
, OF A

COMPANY'S PROFITABILITY

IF POSITIVE , IT REPRESENTS THE WEALTH CREATED BY THE FIRM

IF NEGATIVE , WEALTH THAT HAS BEEN DESTROYED

DIVIDENDS ARE THE PART OF EARNINGS THAT SHAREHOLDERS GET PAID

FIRMS MAY DECIDE TO PAY LOTS OF , VERY FEW OR NO DIVIDENDS

RETAINED EARNINGS
THE PERCENTAGE OF NET EARNINGS NOT PAID OUT AS DIVIDENDS ,

BUT RETAINED BY THE COMPANY TO BE REINVESTED IN ITS CORE BUSINESS ORTO PAY DEBT

RETAINED EARNINGS ARE IMPORTANT TO FINANCE NEW INVESTMENTS AND FOR HIGH GROWTH
-

FIRMS

IN GENERAL ,
A FIRM SHOULD RETAIN THE EARNINGS IF IT CAN INVEST THEM AT A PROFITABLE
RATE AND INVESTORS HAVE OTHER WAYS TO CASH IN THE PROFITS

( I.E. BY SELLING SHARES)

-
PL AND STAKEHOLDERS

SUPPLIERS
-
COST OF MATERIALS
CUSTOMERS EMPLOYEES
I
⑱
-
REVENUE SALARIES
->
INTEREST
COMPANY

TeAEs
BANKS
s dIVinndSHAREHOLDERS

STATE

STRUCTURE OF THE PLACCOUNT

REVENUES ICLIENTS)
-
OPERATING COSTS
KABOR IEMPLOYEES), MATERIALS ISUPPLIERS),OVERHEADS, ADMINISTRATION)

- EBITDA
LEARNINGS BEFORE INTERESTS,TAXES, REPRECIATION, AMORTIZATIONS

-DEPRECIATION

-
AMORTIZATION

- EBIT
LEARNINGS BEFORE INTERESTS, TAXES)
-
INTERESTS IBANKS AND DEBT-HOLDERS)
= EBT
LEARNINGS BEFORE TAXES)
-
TAXES ISTATE)
= NET INCOME CONEARNINGS AFTER TAXES)
-
AIVIDENDS (SHAREHOLDERS)
=
RETAINED EARNINGS
 FOR QUESTIONS
RATIOS STOCK MARKET INVESTORS
->
FOR EXAM!
IN

EARNINGS PER SHARE (EPS)

NET INCOME LEARNINGS)
EPS =
NUMBER OF COMMON SHARES

IT IS THE PROFIT EARNED BY SHAREHOLDERS FOR EVERY SHARE HELD

NOT COMPARABLE ACROSS COMPANIES

PRICE TO EARNINGS RATIO (PE)

SHARE PRICE
PE=-
EPG

IT EXPRESSES HOW MANY YEARS OF EPS ARE NEEDED TO BUY THE SHARE

COMPARABLE ACROSS COMPANIES

INTERPRETATION DE
OF

LOW PE IMPLIES THAT INVESTORS EXPECT AFUTURE DECREASE IN THE EARNINGS OF A FIRM

HIGH PE IMPLIES THAT INVESTORS EXPECT AN INCREASE IN THE EARNINGS OF

A FIRM

LOW OR HIGH RELATIVE TO WHAT?

INDUSTRIES HIGHER IN HIGH-GROWTH INDUSTRIES, LOWER IN MATURE OR DECLINING INDUSTRIES)
COUNTRIES CHIGHER IN HIGH-GROWTH COUNTRIES, LOWER IN COW-GROWTH COUNTRIES

PERIODS OF TIME CHIGHER IN "BULL" PERIODS, LOWER IN "BEAR PERIODS"

MARKET TO BOOK RATIO (MB)
MB:MARKET
CAPITALIZATION
BOOR VALUE OF EQUITY

IF LARGER THAN 1, THE FIRM HAS A GOODWILL

( EXPECTATION OF EARNINGS GROWTH,
OR ASSETS ARE UNDERVALUED S
IF SMALLER THAN 1, THE FIRM HAS A BADWILL
EXPECTATION
or ASSETS ARE
LOWER FUTURE EARNINGS,
OF
OVERVALUED S

DIVIDEND PER SHARE

DPS =

wum NDENDSOMMON SHARES

LIKE EPS, BUT WITH DIVIDENDS IN PLACE OF NETINCOME

E.C. DPS = $1.68;IFMARY HAS IM SHARES, SHE GETS ($1.68 1M) $1680000
·
=

MANY FIRMS LIKE TO KEEP DPS CONSTANT CORMAKE IT GROW REGULARLY) OVER THE YEARS
DOING SO DEMONSTRATES MANAGEMENT'S TRUST IN THE ABILITY OF THE FIRM TO GENERATE

STEADY OR GROWING PROFITS

PAYOUT RATIO
DIVIDENDS DPg
PAY-OUT= -
NET INCOME LEARNINGS) EPS

FRACTION OF EARNINGS THAT IS PAYED OUT TO SHAREHOLDERS

SOME COMPANIES LEAVE DPS FREE TO VARY AND TRY TO KEEP THE PAY -
OUT RATIO CONSTANT
(E.C. THEY ALWAYS PAY GO. OF THE EARNINGS OUT TO SHAREHOLDERS)