Hello, everyone, today is the fifth lecture in a series of valuation courses!

Teacher Yang Jinqiao continues to explain "profit" in 1.2W words.

Niu friends, hurry up to move the small bench, take good notebooks, and start the class!

See the last part for details."when we talk about 18 kinds of profits, what are we talking about? (above) "

After understanding which set of accounting standards an enterprise's financial statements follow, let's take a look at the following details.Differences in [profit] subjects under different accounting standards。

A shares: [profit] subject under CAS

When reading the consolidated profit statement of A-share listed companies, investors will find that except for the financial industry, the accounting subjects and statements used by different companies in other industries are all in the same format, all in accordance with the following formula:

(I) operating income-operating cost-tax and additional-four major period expenses (sales, management, R & D, finance) + (investment income + fair value change income + credit impairment loss + asset impairment loss + asset disposal gain + exchange gain + net exposure hedging income) = operating profit

(ii) operating profit + non-operating income-non-operating expenses = total profit

(iii) Total profit-income tax expenses = net profit, in which net profit can be divided into continuing operating profit and termination operating profit according to operating continuity, and can also be divided into: net profit vested in the shareholders of the parent company (that is, return net profit), and minority shareholders' profit and loss according to the ownership. It is worth mentioning that after deducting the non-recurrent profit and loss, the net profit attributable to the shareholders of the listed company can also be obtained after deducting the non-recurrent profit and loss, which is referred to as the non-return net profit.

(iv) net profit + other comprehensive income after tax = total comprehensive income, in which the total comprehensive income can also be divided into the total comprehensive income belonging to the shareholders of the parent company (that is, the total comprehensive income attributable to the shareholders of the parent company) and the total comprehensive income belonging to minority shareholders.

From the above formula, we can seeThe main profit items that appear in the financial statements of A-share listed companies areOperating profit, total profit, net profit, net profit, deduction of non-return net profit, comprehensive income and total return.

Careful investors may notice that there are no common profit subjects such as gross profit, operating profit, EBIT, EBITDA, NOPAT and so on. This is mainly because CAS has strict and uniform regulations on the financial reporting subjects of listed companies, while subjects such as gross profit, operating profit, EBIT, EBITDA and NOPAT are not subject to disclosure by CAS. Then investors usually see the gross profit, operating profit and so on related to A-share listed companies.Strictly speaking, it is not based on a unified formula, so it is necessary to pay special attention to the caliber of calculation.

Hong Kong stocks: profit subject under IFRS

Different from CAS, IFRS does not stipulate subtotal items between [income] and [net profit], so Hong Kong listed companies that use IFRS to compile financial statements use their own methods to calculate all kinds of subtotal items and lack a unified presentation method. In practice, listed companies generally adopt the IFRS profit statement template provided by the four major accounting firms in the world.

According to a survey conducted by IFRS officials, 63 of the 100 sample companies reported operating profits, using at least nine different calculation methods.Furthermore, for Hong Kong listed companies, it is necessary for investors to make it clear:

(1) Hong Kong listed companies compiled in accordance with IFRS do not have a unified reporting method as A-share listed companies must follow.

According to IFRS 1, the income statement should include all income and expense items-(i.e. all "non-owner" equity changes), including (a) components of profit and loss, and (b) other comprehensive income (i.e., other income and expense items that IFRS requires or permits not to be included in profit or loss). It can be seen that the regulations of IFRS on the consolidated income statement of listed companies are relatively loose. Compared with CAS, the consolidated income statement of IFRS is rule-oriented.

(2) for the profit subjects disclosed in the financial statements of listed companies based on IFRS, special attention should be paid to their calculation formula and caliber, because the calculation methods are likely to be different.

In addition, it is worth mentioning that the profit statement under CAS (also known as the income statement) corresponds to the consolidated income statement of IFRS and GAAP (also known as profit and loss and other consolidated income statements). In practice, because other comprehensive income items are basically ignored by investors, the income statement and the comprehensive income statement are often mixed. For the convenience period, this article unifies with the income statement to refer to the consolidated income statement.

Next, let's go to the practical part!

以$Tencent (00700.HK) $、$Wuxi Apptec (02359.HK) $和Meituan comments-W (03690.HK) $As an exampleTo describe the various [profit] subjects involved in financial statements based on IFRS.

First of all, it can be seen from Tencent's consolidated income statement in 2020 that it has two profit subjects, which are not included in CAS: gross profit and operating profit. In addition, The names of profit subjects such as [profit before tax], [profit during the period], [profit attributable to equity holders of the Company] and [total comprehensive income during the period] are also different from [total profit], [net profit], [net profit] and [comprehensive income] of A-shares.

Secondly, from Meituan's comments and Wuxi Apptec's 2020 report, we can see that in addition to IFRS-based profit subjects, there are also non-international financial reporting standards (hereinafter collectively referred to as: Non-IFRS) measurement, that is, Non-IFRS profit subjects. For example, adjusted EBITDA, net adjusted profit, profit attributable to holders of non-parent companies of IFRS, profit attributable to holders of adjusted non-parent companies of IFRS, etc.

These Non-IFRS profit subjects are one of the biggest differences between the financial statements of A-share listed companies and those of Hong Kong stocks and US stocks, because financial statements based on IFRS and GAAP generally provide such Non-IFRS and Non-GAAP-measured profit subjects.

So what are Non-IFRS and Non-GAAP indicators?

When listed companies disclose such indicators in their financial statements, they must disclose detailed descriptions of such indicators. In a nutshell, this kind of index is that the management of the company thinks that it can measure the actual operation of the company more accurately and truly, so it provides additional reference for investors and analysts to assist investment decisions.

In other words, accounting standards do not require companies to disclose such indicators, but on a voluntary basis.In addition, such indicators are unaudited and can not replace profit subjects under IFRS or GAAP, nor can they be disclosed at will by the management of the company, and must comply with the requirements of regulators.

For example, in May 2016, the US Securities Regulatory Commission issued a special document to regulate the disclosure of Non-GAAP, and stipulated that the data of Non-GAAP should be adjusted from the data of GAAP. In order to show what can be adjusted, some routine items cannot be adjusted, and consistency should be maintained. For details, please click here.Link。

To sum up, compared with the profit subjects included in the financial statements of A-share listed companiesThe financial statements of Hong Kong listed companies compiled with IFRS contain great differences in profit subjects, which exist in three aspects.：

(a) whether there is a difference, that is, some profit subjects exist only in CAS and some profit subjects exist only in IFRS

(B) name differences, such as total profit, net profit, home net profit and consolidated income in CAS, corresponding to pre-tax profit, profit for the period, profit attributable to holders of the parent company and total comprehensive income in IFRS, respectively.

(C) profit categories measured under non-standard measures, such as EBITDA, adjusted EBITDA, adjusted net profit, etc. The above differences are one of the core reasons for the large number of profit subjects.

This picture is suggested to collect!

Us stocks: profit subject under GAAP

Different from the financial statements of A-share listed companiesThe financial statements of American stock listed companies based on GAAP are not only not uniform in format, but also the accounting subjects of financial statements are randomly named.。

Specifically, for American stock listed companies, not only the financial statements of listed companies in different industries are quite different, but also those of listed companies in the same industry are quite different. and the financial statements of competitive companies audited by the same accounting firm in the same industry are also quite different.

such as$BABA (BABA.US) $与$JD.com (JD.US) $，More than 70% of the accounting subjects in the statement have different names.! This is mainly because the American Accounting Standards Board (FASB) does not force enterprises to disclose financial statements in accordance with the uniform format in GAAP, but only requires the content to be disclosed and specific accounting subjects.

Take the income statement as an exampleAccording to GAAP's requirements for profit tables, American companies can choose to present them according to "one-step" (one step method) or "two-step" (two steps method).

In practice, American companies often use "two-step" (two-step method) to present. For US listed companies, in addition to comply with the GAAP, but also need to comply with the relevant disclosure regulations of the Securities and Exchange Commission (SEC). According to the Regulation S Mel X issued by SEC, when disclosing financial statements, US listed companies must: (a) use generally accepted terminology; (b) non-material subjects do not need to be listed separately; and (c) framework first-level accounting accounts should be consistent.

As far as the [profit] subject under GAAP is concerned, it is essentially the same as the [profit] subject under IFRS, and there are also gross profits, operating profits, profits under non-criteria (EBITDA, EBIT, NOPAT, etc.). There are only differences in calculation caliber.

Take operating profit (operating income) as an exampleIn Wuxi Apptec's consolidated income statement, which adopts IFRS, operating profit includes other income (including interest income, government subsidies, etc.), other income and losses (including exchange gains and losses, etc.).。

By contrast, American listed companies that have adopted GAAP，如$NetEase, Inc (NTES.US) $、$Alphabet Inc-CL C (GOOG.US) $、$Apple Inc (AAPL.US) $In the consolidated income statementOperating profit does not include interest income, other income and other subjects.

Therefore, when comparing the operating profits under the IFRS caliber and the operating profits under the GAAP caliber, and even when comparing the operating profits of different companies under the IFRS caliber,It is necessary for investors to pay attention to the specific composition of operating profits.。

By the same token, this is especially true for non-standard profit subjects. After all, the adjustment items of different listed companies are very different.

Generally speaking, CAS has detailed regulations on the specific format and subjects of financial statements (including names, arrangement order, etc.). In addition, the Ministry of Finance will adjust the relevant formats from time to time; in contrast, IFRS and GAAP only stipulate the framework of financial statements, and as for the contents within the framework, there is room for enterprises to play freely.

In addition, IFRS and GAAP also allow enterprises to disclose non-standard profit subjects (Non-IFRS, Non-GAAP) in their financial statements, such as EBITDA, EBIT, NOPAT, adjusted EBITDA, adjusted net income, etc., and such profit subjects are largely "private customization", that is, the adjustment items of different listed companies to calculate such profit subjects vary greatly.

And it is worth mentioning that even for subjects such as operating profit, according to the official IFRS survey, 63 disclosed operating profit, 37 did not, and at least nine different calculations were used to obtain operating profit. Therefore, the difference of different standards is the core reason for the large number of profit subjects.

Differences in the names of profit subjects in different markets

In addition to the differences caused by accounting standards, different markets have different names for the same profit subject is also the core reason for the large number of profit subjects. Only taking the listed companies mentioned in the article as an example, we can find that there are many names for the same profit subject, as detailed in the table below.

The complexity of economic business requires accounting to reflect more accurately.

The essence of accounting is the language of business. Since its birth, in order to record daily transactions, the essence and goal of financial standards reform are to more accurately, more comprehensively and better reflect the essence of economic business. With the increasing complexity of modern economic system, the expansion of business scope and the increasing innovation of business essence, businesses have higher requirements for financial statements. On this basis, in order to better reflect the operating results of enterprises, it is also necessary to create and use more profit subjects.

Below, analyze the real meaning behind the different profit subjects one by one.

First of all, under CAS, profit subjects reflect the operating results of an enterprise in a certain accounting period. The common and most important gross profit, operating profit, total profit and net profit represent different levels of profit.

ForGross profitWhich is defined as operating income-operating cost, or equal to revenue-revenue cost (or Revenue-Cost of revenue), which is easier to understand because gross profit is substantialDoes not take into account any period costs and gains and losses arising from non-operating activities。

而Operating profitAs the name implies, it refers to the net income generated by the daily business activities of an enterprise, that is, the income from the daily activities minus the expenses in the daily activities, andNon-operating income and expenditure are not considered.。

So-calledTotal profitThe biggest difference between operating profit and operating profit lies in the word "operating". Operating profit does not include gains and losses (that is, non-operating income and expenditure) that are not related to daily business activities.On the basis of operating profit, the total profit includes two items: "non-operating income" and "non-operating expenditure" which emphasize the amount of "non-operating" profit.。

而Net profit, which is obviouslyAfter taxThe total profit, after all, the final operating results of the enterprise must be taxed.

In addition, net profit can be further classified according to ownership and operating continuity, namely (a) home net profit and minority shareholder profit or loss, and (b) continuing operating profit and termination operating profit.

Finally, the so-called comprehensive income can be obtained when the net profit is superimposed by other comprehensive income. In view of the fact that other comprehensive income, which is directly included in the owner's equity, has little to do with day-to-day business activities, and the division is more complex, after all, other comprehensive income can be further divided into (a) other comprehensive income that can be reclassified into profit or loss, and (b) other comprehensive income that cannot be reclassified into profit or loss, so in practice, little attention has been paid to this, and it has little impact on actual investment. In turn, investors do not have to spend a lot of time and energy on this profit subject.

In addition to the above profit subjects, there is also a homing net profit under CAS called deducting non-recurring profit and loss, referred to asDeduction of non-return net profit. Obviously, the net profit of non-return is deducted.Equal to return net profit minus non-recurring profit and loss。

So what transactions or events belong to non-recurring profit or loss? According to the "explanatory announcement No. 1-non-recurrent profit and loss (2008)" of the company's information disclosure of publicly issued securities, non-recurring profit and loss refers to the profits and losses arising from various transactions and events that are not directly related to the normal business operation of the company, and although they are related to the normal business operation, because of their special and sporadic nature, which affect the users of the statement to make normal judgments on the company's operating performance and profitability.

Generally speakingThe so-called non-recurring profit or loss refers to unsustainable, one-off / accidental net profit or lossAccording to the information disclosure requirements of the CSRC, there are a total of 20 non-recurrent profit and loss items, and enterprises should compare the definition of non-recurrent profit and loss with the definition of non-recurrent profit and loss when compiling prospectuses, periodic reports or reporting materials for issuing securities. comprehensively consider the degree of relevance and sustainability of the relevant profits and losses with the normal business operation of the company, make a reasonable judgment according to their own actual situation, and make full disclosure.

It can be seen that the net profit after deducting non-recurring profit and loss can reflect the sustainable profitability of a superior company more truly and accurately.

Similarly, the operating profit under IFRS and GAAP is roughly equivalent to the operating profit under CAS; as for the gross profit, net profit and continuing operating net profit under IFRS and GAAP, they are essentially the same as the corresponding profit subjects under CAS. The real difference lies in the profit subjects under non-criteria, that is, the profit subjects under Non-IFRS and Non-GAAP, such as EBITDA, EBIT, NOPAT, adjusted EBITDA and so on. These non-standard profit subjects are often based on the profit subjects under the standards, and then adjusted according to the business situation of the enterprise itself.

Take the frequently used EBITDA as an exampleThis is based on the principle of voluntary disclosure, and the calculation method is not uniform, but it can be roughly divided into two types, one of which is the reverse method, that is, total EBITDA= profit + net interest expense + depreciation and amortization expense Second, according to the definition of the listed company itself, for example, in Tencent's financial report, EBITDA is calculated on the basis of operating profit less net interest income and other income ╱ losses, plus depreciation of property, equipment and equipment, investment properties and right-to-use assets, and amortization of intangible assets. The adjusted EBITDA is calculated on the basis of EBITDA plus equity settlement of share fee expenses. As for the adjusted EBITDA disclosed by Meituan in 2019 is different from the adjusted EBITDA disclosed by Tencent, the specific performance is that the calculation caliber is different.

So what is the investment point of EBITDA? According to Wifs P, this indicator is used to approximately replace the cash flow index. The inherent logic of this new index is also very simple: among the influencing factors of net profit, interest is financing behavior and has nothing to do with the main business operation; income tax varies according to different regions and laws faced by each company. it is an external factor not controlled by the company; depreciation and amortization are usually the main non-cash expenses. Therefore, after excluding these effects, the remaining results can roughly reflect the operating cash flow of a company, that is, a superficial profit statement index is used to reflect the actual cash flow. In investment, EBITDA can be mainly used for valuation, such as enterprise value multiple method.

Different [profit] subjects reflect different economic essence.

As mentioned earlier, based on the increasing complexity and innovation of the company's business, a single net profit can not fully and accurately reflect the actual effect of the company's operation, so the number and meaning of profit subjects are becoming more and more complex.

But no matter how the profit subject evolves, the most important thing for investors is to grasp the economic essence behind it, not just the profit account figure itself!

In order to make financial statements better serve investment decisions, IFRS officials tried to modify the presentation and disclosure requirements of general statements, and a large part of the reform focused on improving the presentation of the current income statement. After all, the current IFRS does not stipulate the subtotal items between the income statements, so there are many drawbacks, such as different companies using IFRS will calculate the subtotal items of the income statement based on different caliber, thus greatly weakening the comparability. As a result, the IFRS officially proposes to increase the requirement for subtotal items in the income statement.

Specifically, IFRS officially recommends that the income statement be divided according to operating activities, integrated joint ventures and joint ventures, investment activities, and financing activities, which in turn will add three mandatory disclosure subtotal items, namely: operating profits, operating profits and profits from integrated joint ventures and joint ventures, fund-raising activities and profit before income tax, as shown in the following chart.

I believe that the friends here have some understanding of the reasons for the large number of profit subjects and the essence behind different profit subjects.

However, for investors, what is more important is how to apply the above knowledge in the investment. Therefore,Learning to look at the [profit] subjects in different markets and how to apply them is the next part of this article.

That's all for today's sharing.

Let's continue to talk about "profit" in the next class!

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