According to SEBI disclosure norms, companies must report their financial performance quarterly and annually. The annual report contains important information, such as the company's products, services, management vision, guidance, major accomplishments, changes to leadership, mergers or acquisitions related activity, and any regulatory changes.
The Profit & Loss accounts show the financial performance of the company over a given period. It shows the company's revenue, expenses and costs over a period of time. Usually it is a quarter or a year.
Here is an example P&L account from the year ending 31 March 2010.
After deducting returns, allowances and discounts, the company's income from sales of goods or services is called net sales. These deductions are reflected in the sales number reported by a company on its financial statement.
This refers to the cost of the direct materials needed to produce the quantity of goods that are sold.
Buying goods to make finished goods is called trading goods. Trading goods are a component in the P&L of raw material costs. The cost of these goods must not exceed 30% of raw material cost for any company. Distribution companies are an exception, and the cost to trade goods is often a large percentage of the raw material cost.
This is the actual amount that was paid for all employee wages and salaries. Employer-paid insurance premiums, pension deposits and medical benefits, as well as all fringe benefits. Service-oriented businesses, which require skilled talent most, tend to have higher employee costs as a percentage. This may be lower in manufacturing companies that use automation. However, the employee cost as a percentage of sales should be comparable to the industry. Any deviation should be investigated.
Actual cost of power used to produce the goods sold. Because of the large machines involved, power costs are usually higher in heavy manufacturing.
These are used to determine the asset's cost over its lifetime. If a company purchases a machine for Rs. If the machine is valued at Rs. 100,000 and has a 10-year useful life, it will be amortized over 10 years. Each accounting year, Rs. The equipment will help to make 10,000 every year, and the company will add Rs. Due to the shorter useful lives of computers, IT companies tend to have higher depreciation.