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Income statement


Calculation Paths between Income Statement

Non-recurring items included in EBIT

How to input non-recurring items that are included in EBIT?

In Valuatum Excel Model there is a row called “Non-recurring items included in EBIT” after the EBIT (operating profit) section (both in estimates and cumulative section). This row is for sorting out the non-recurring items included in EBIT. If there are some non-recurring items included in EBIT, they should be put here as well. Note that these items have to be included also in EBIT and should not be removed from EBIT when put here. This row just informs which items in EBIT are non-recurring items. The figures put on this row are not added to the EBIT. When the non-recurring items in EBIT are also put here, they will be excluded in some figures of the analysis.

Perhaps the best solution would be also to have own division for the non-recurring items in EBIT. Then investors can see the NRIs also in the divisions. Anyway you should mark the NRIs also to the non-recurring items in EBIT.

Why input non-recurring items correctly?

There is a clear need to exclude non-recurring items from EBIT. The analysis will give a better picture of how the core business of the company is doing. Usually investors are more interested in how the normal core business is doing than e.g. if there are some sales profits. Now everyone can choose whether they follow the adjusted figures (which exclude NRI) or the reported, unadjusted figures. At the same time you can show the operating profit as the company reports it, and the customers can see how much operating profit includes non-recurring items. Also some key figures (like EPS) can be calculated using adjusted EBIT. Therefore we recommend that all the non-recurring items are inputted correctly in the Valuatum Model.

What to do if company does not report depreciation?

There are few things you can do:

1. Quite often depreciation is announced separately from income statement, either in notes or somewhere in the text. So, you can search the word “depreciation” and may find the value.

2. For the fiscal year result announcement the depreciation figure might be missing. However, companies typically tell it afterwards in the official annual report. You can take the figure from there.

3. If you know the depreciation for full-year but not for quarters, you can divide the full-year figure by four, which allocates the depreciation equally to quarters. Even though the values are not fully right, it is “allowed” to make some own estimates; the historic EBIT figures will still be correct. Besides, it is often quite easy to estimate the quarter depreciation figures so you will probably not make big mistakes hereby.

4. We have also pumped into reports where depreciation is not told directly but in cash-flow statement there is “earnings before depreciation”. With that you can calculate depreciation.

5. One last thing to do is just to leave depreciation fields blank. In some industries depreciation is not proportionally very big item, so it does not even harm much.

What to do if company tells nothing about taxes?

When company has not said anything about the taxes, they can often be calculated from other figures. Company often reports “Profit before tax” and “Net earnings”. Between those two there are no other items than taxes and thus you can calculate taxes simply: Taxes = Net earnings – Profit before tax

Associated companies’ profit is reported before EBIT

In normal case associated companies’ profit or loss is reported after EBIT. However, sometimes companies tell it before EBIT. In the latter case you have two possibilities:

1. Ignore the figure especially if it is not very big.
2. When the figure is essential, you can make on own division for it.

Quarterly information is not available

If the company does not report in quarterly level, use Q4 column in history data and estimates and leave columns Q1-Q3 empty. If financial information is reported twice a year, then use columns Q2 and Q4.

Remember that sometimes quarterly information can be found in notes.

Net sales is in division level but EBIT is in group level

Should I estimate also net sales in group level?

When EBIT (Operating Profit) is only in group level, it is perhaps not even worth of effort to follow either net sales in division level. Of course it gives you some guidance about the ability of the company to grow in the future: if some divisions/products are growing quickly and some are not, then the relative weight of the divisions is interesting information.

However, more interesting is to know how profitable the different divisions are. If you do not know it or you cannot even estimate it properly using the current information, then it is perhaps not worth of effort to follow either net sales at division level in a small company.

I would like to estimate sales in divisional level, what to do?

If you decide to follow the net sales in divisional level then:

Enter division names normally but add one extra “division” called Group (or Total etc.). Then use the actual divisions for net sales and the Group division for EBIT.

The only limitation is that you cannot estimate the Group division with EBIT-% (margin). However, you can avoid also this problem by writing formulas to the absolute cells: my EBIT estimate = my EBIT-% x total net sales. Otherwise you can use the model normally.