P&L — Line by Line
From revenue to net profit, every step.
The P&L is a waterfall: revenue at the top, costs subtracted in tiers, profit at the bottom. Reading it professionally means understanding what each tier includes and where profit can be flattered. Revenue Top line. Check the recognition policy and whether growth is organic or from one-offs. Cost of goods sold Direct cost of what was sold. Revenue − COGS = gross profit. Gross profit The first profitability tier. Gross margin trend reveals pricing power. Operating expenses Selling, admin, staff. Watch if these grow faster than revenue. Depreciation & amortisation Non-cash charge spreading asset cost over time. Policy choice affects it. Operating profit (EBIT) Profit from core operations before interest and tax, the cleanest performance measure. Finance costs Interest on debt. Heavy here signals a leveraged company. Exceptional / one-off items Gains or losses that won't repeat (asset sales, write-offs). Strip these to see underlying profit. Compare the effective tax rate to the statutory rate; big gaps need explaining. Net profit Bottom line, what's left for shareholders. Net profit jumped 50%, but the notes show a one-off gain from selling a building. Strip it out and underlying profit was flat. The headline flatters; the professional reads past it. Distinguish operating profit (repeatable, from the core business) from one-off items (won't recur). Valuation should rest on the sustainable, operating part.
Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: The Annual Report.