1. Things concerning profits and revenues.

Net sales (or net revenue):

This refers to the amount of sales made by a company. From the example above (it’s Apple’s 2021 Report), we can see that the sales are divided into products and services. Usually, companies would lay down their business activities here.

Apple (from above) made it clear that their two core businesses are in products and services (they did detail out what are the products and businesses in another part of the report). From this, you can generally see three things:

• Which part of their business makes the most money.
• How much are they making for the year.
• Is the amount of money they’re making this year better than the years before?

Operating income:

Operating income is simply how much they are making when they actually take into account the cost of producing their products/services and the cost of operating their business.

The formula of operating income is –

Operating income = Total revenue — Cost of goods sold — Operating expenses

From this, you’ll see the actual money that the company is making for the year, and you can compare it to the amounts from the years before.

Another thing that you get from the table above is “Income before the provision of Income tax”, or what is also known as Profit Before Tax (PBT).

PBT is calculated by the following formula:

PBT = Total revenue — operating expenses

PBT is important because it is the basis to calculate Profit After Tax (PAT) which gives you a glimpse into how much you will have to operate in the next term. PAT’s formula is as follows:

PAT = PBT — All taxes

Let’s shake off all these fancy terms to make it more understandable. It’s pretty straightforward and logical. If a company makes money in a year, what will it use the money for (after paying for expenses, taxes, etc.)?

No, not charity, of course! They’ll use it to run their business the very next year. So, with how much they make that year, you can roughly tell how much they will have to spend the next year (without taking into account next year’s income).

Anyway, some reports may include a slot for an “exceptional item” or whatever the company decides to label it as — it stands for expenses that are accrued for the year, but it will most likely not happen again the next year.

Let’s take an example, Company ABC operates a few of its factories in Country XYZ. In the year 2020, Country XYZ was hit by an earthquake that damaged Company ABC’s factories and equipment. So, these expenses are considered special expenses that may not be incurred again in the near future.

2. Things concerning expenses.

Expenses:

Here, you can find a few things:

• How much Apple incurred to produce its products?
• How much Apple incurred to provide its services?
• How much Apple incurred in its operating activity?
• Research and development (R&D) spendings are one of the most looked-at expenses — it tells you how serious the company is in improving its products/services.
• Fun fact — you can also get a general guess on how well a company pays its employees by comparing the margin of its income with its operating expenses.

Finance Cost/Debt/Interest:

There are actually many other ways in which debt is labeled — given how many instruments there are to borrow money. For Apple here, we can see that apart from the usual way of borrowing, they use Commercial Paper as their instrument of borrowing money. From the above, we can learn a few things:

• How much does Apple get from issuing commercial paper.
• How much Apple spends to repay the commercial papers.
• How much interest are they paying for the debt (from above, it mentions that the rate was at 0.06%).
• How much Apple accrued in interests and penalties
• How much Apple spends on paying interest and penalties.

Depreciation & Amortization:

Depreciation is usually used for tangible assets while amortization is for intangible assets. What do they mean? They are an accounting method that is used to spread the cost of buying/acquiring assets through their useful life period.

For example, in 2022, Apple bought a machinery that can help in the production of iPhones. The machine cost $1,000,000. The machine can function for approximately 10 years.

So, instead of putting in its P/L statement an eye-watering (-$1,000,000) for one machine, what Apple can do is it will distribute the cost of the machine throughout the machine’s useful life — i.e., by spreading $1,000,000 for 10 years. So, Apple’s P/L statement will reflect a -$100,000 for 10 years upon the purchase of the said machine. From this, you can see:

• How much Apple is still paying in acquiring its assets.
• One of the reasons people look at cash flow statements rather than P/L statements is because of this — they want to know how much the company actually spent for the year.

Other expenses:

This is where companies put other expenses they want to put. As for Apple, we can see from the example above that it chose to put its other income or expenses together with its interest and dividends-related transactions. From the above you can see:

• The total of Apple’s other income as opposed to its other expenses is positive, which means that it made more from other sources than it spent on other sources.

Tax:

From above, there isn’t much to explain, apart from the difference between deferred and current tax. A current tax refers to the amount of tax that they will have to pay within the financial period, meanwhile, deferred tax is when the tax is supposed to be paid, but at a later date than the financial period.

So, from Apple’s P/L statement above, you can see that Apple paid $9,424,000,000 in Foreign Income Tax, meanwhile, they will pay $2,740.000,000 at a later date.

From this, you learned on:

• The difference between current and deferred tax.

3. Earnings Per Share

Earnings per share (EPS) is one of the most valuable insights that one can get from going through a P/L statement. 

It literally tells you how much a single share of the company’s stock is worth It tells you how much a share of the company makes in revenue. EPS is calculated using the formula below:

EPS = Profit After Tax Outstanding Shares