📁 Finance 🏷️ Stock-Market 🏷️ Fundamental-Analysis

📋 Topics Covered

  1. 3.1 📈 Introduction to the Profit and Loss Statement
    • Defining P&L vs. Balance Sheet (period performance)
    • The concept of a Financial Year (FY)
  2. 3.2 💵 Revenue and Income Streams
    • Operating Revenue (Core sale & other operations) vs. Other Income
  3. 3.3 💸 Understanding Operating and Non-Operating Expenses
    • Key operating costs (materials, employee benefits, financing)
    • Depreciation vs. Amortization vs. Impairment
  4. 3.4 💳 Capital Expenditure vs. Revenue Expenditure
    • Balance Sheet Assets (CapEx) vs. Income Statement Expenses (RevEx)

3.1 📈 Introduction to the Profit and Loss Statement

The Profit and Loss (P&L) statement measures the financial performance of a company over a specific operational period.

🕒 P&L vs. Balance Sheet: While the Balance Sheet acts as a cumulative financial snapshot showing what a company owns and owes since day one, the P&L Statement functions as an operational scorecard, tracking revenue, costs, and profits over a defined period (e.g., a quarter or a full year).

  • The Financial Year (FY): In India, the financial calendar runs from April 1st to March 31st.
  • Reporting Example: A P&L statement labeled “for the year ended March 31, 2026” compiles all business revenues and expenses generated during the FY 2025–26.

3.2 💵 Revenue and Income Streams

Company inflows are split into operations-driven sales and non-core earnings:

Income Category 🚀 Revenue from Operations 🪙 Other Income
Core Source Generated from primary business activities. Generated from non-operating activities outside the core business.
Primary Inflows Sale of manufactured goods, consulting fees, or service delivery. Bank fixed deposit interest, dividends received, or rent from surplus properties.
Secondary Inflows Scrap sales, export incentives, and minor operational commissions. Capital gains from selling investment portfolios, currency exchange gains.

3.3 💸 Understanding Operating and Non-Operating Expenses

Expenses document the cash outflows needed to run the business:

  • Cost of Materials Consumed: Raw materials used up during manufacturing.
  • Purchases of Stock-in-Trade: Ready-to-sell goods bought for immediate resale.
  • Employee Benefit Expenses: Salaries, wages, PF contributions, and staff welfare schemes.
  • Finance Costs: Interest paid on bank loans, debentures, and working capital limits.
  • Other Expenses: Operational overheads such as factory rent, audits, and insurance.

📉 Asset Value Reductions (Non-Cash Expenses)

Businesses must account for the diminishing value of their assets over time. This is split into three classes:

Expense Type 📉 Depreciation 📉 Amortization ⚠️ Impairment
Target Asset Type Tangible Assets (Physical items like buildings, machinery, and vehicles). Intangible Assets (Non-physical items like software, patents, and copyrights). Any long-term asset (tangible or intangible).
Nature of Reduction Gradual, predictable wear and tear over the asset’s useful life. Spreading the cost of acquisition over the asset’s active legal or useful life. Sudden, unexpected, and permanent decline in asset value.
Trigger Example A factory forklift losing value as it gets older and is used. A 5-year software license costing $50k being expensed at $10k/year. A warehouse collapsing or a patent becoming obsolete due to new tech.

🧮 Linear Depreciation Formula: Annual Depreciation Expense = (Asset Purchase Cost - Salvage Value) / Useful Life (Years)

3.4 💳 Capital Expenditure vs. Revenue Expenditure

How expenditures are classified dictates whether they hit the Balance Sheet or the P&L statement:

Dimension 🏢 Capital Expenditure (CapEx) 🧾 Revenue Expenditure (RevEx)
Definition Funds spent to acquire, upgrade, or maintain fixed physical assets. Funds spent on daily operational expenses to run the business.
Lifespan Long-term (value lasts greater than 1 year). Short-term (value is consumed within less than 1 year).
Accounting Treatment Capitalized: Recorded on the Balance Sheet as an asset; expensed gradually via depreciation. Expensed: Deducted directly on the P&L Statement in the year incurred.
Examples Buying land, building factories, purchasing servers, or AC systems. Salaries, rent, raw materials, electricity bills, and office tea/coffee.

📖 References & Video Lectures