8 Mar 2020

Explainer: A guide to digging into how much money companies make

4:06 pm on 8 March 2020

How can you find out if a company is profitable or not? Business Reporter Nona Pelletier explains.

Stock / market generic.

Photo: 123RF

All registered companies are required to produce a financial report, which tells shareholders or the tax department how much they made.

But only listed public companies are required to share that information with the public.

You can easily find those financial reports by searching the company announcements on the NZX website.

However, many of these reports can be quite complicated to read, even for expert analysts.

So what numbers should you focus on when you just want to get a sense of how much money a company is making?

The easy answer is to look at the top line and bottom line of the profit and loss statement.

That's usually the first statement you'll come across in a financial report.

The top line almost always is the revenue, while the bottom line is usually the net profit after tax is paid - although that is sometimes a negative number, which means the company made a loss.

But beware not to confuse the bottom line profit or loss, with underlying profit.

This type of profit is sometimes call ebit, ebitda (Earnings before interest, tax, depreciation and amortisation) or even normalised earnings. And that is a lot of financial jargon for earnings before a large variety of costs or adjustments, such as interest, tax.

These types of calculations can differ quite a lot from one company to the next, or one year to the next, which can make them difficult to understand.