Finnacle Shah Classes on Multipie

Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~60 views

In the first edition of 𝗙𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝘀𝘁𝗮𝘁𝗲𝗺𝗲𝗻𝘁 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀 𝘀𝗲𝗿𝗶𝗲𝘀 we will be starting from 𝟏𝐬𝐭 𝐚𝐧𝐝 𝐦𝐨𝐬𝐭 𝐢𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐥𝐢𝐧𝐞 𝐢𝐭𝐞𝐦- "𝐑𝐞𝐯𝐞𝐧𝐮𝐞"💲

In this thread🧵, we will cover: “𝐔𝐧𝐝𝐞𝐫𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐏𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐨𝐧 & 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐑𝐞𝐯𝐞𝐧𝐮𝐞 𝐅𝐢𝐠𝐮𝐫𝐞𝐬 - 𝐏𝐚𝐫𝐭𝟏"📊

𝐖𝐡𝐚𝐭 𝐢𝐬 𝐫𝐞𝐯𝐞𝐧𝐮𝐞?

Revenue a.k.a topline/total income is sales (turnover) of a company, generated from its business operations during the year. Companies earn revenue in return for the supply of goods/services.

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

𝗪𝗵𝘆 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗿𝗲𝘃𝗲𝗻𝘂𝗲 & 𝗶𝘁𝘀 𝗱𝗿𝗶𝘃𝗲𝗿𝘀 𝗶𝘀 𝗶𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝘁?🧐

- It's the only sustainable source for the co. to generate cash to fuel the growth & survival of the business.💸

- Revenue leads to earnings (after deducting costs) & earnings drives valuations (we will cover this later that how earnings drive valuations)💰

Thus, understanding Revenue figures and its drivers is very important as the 𝐰𝐡𝐨𝐥𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐚𝐧𝐝 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐚𝐥𝐲𝐬𝐢𝐬 𝐢𝐬 𝐝𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭 𝐨𝐧 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐚𝐦𝐨𝐧𝐠 𝐚 𝐟𝐞𝐰 𝐨𝐭𝐡𝐞𝐫 𝐟𝐚𝐜𝐭𝐨𝐫𝐬.

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~20 views

𝐏𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐢𝐬 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 𝐛𝐲 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐢𝐧 𝐝𝐢𝐟𝐟𝐞𝐫𝐞𝐧𝐭 𝐬𝐞𝐜𝐭𝐨𝐫𝐬😲

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

𝐇𝐨𝐰 𝐢𝐬 𝐫𝐞𝐯𝐞𝐧𝐮𝐞 𝐜𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞𝐝?🙄

Total Income/Revenue from operations = Revenue from operations + Other Income

In HUL’s case: Total revenue from operations (total income) = Addition of revenue from Operations and Other Income i.e. 47,028 + 410 = 47,438 Cr.

Revenue from Operations: Income generated from the company's core business operations.

Now to understand, how this core revenue of 47,028crs is generated one needs to open the revenue’s footnote number adjacent to the revenue figure (footnote no. 24 in HUL’s case) in the annual report📑

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

𝐒𝐚𝐥𝐞𝐬 𝐨𝐟 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐬/𝐬𝐞𝐫𝐯𝐢𝐜𝐞𝐬 = 𝐒𝐚𝐥𝐞𝐬 𝐩𝐫𝐢𝐜𝐞 (𝐂𝐨𝐧𝐭𝐫𝐚𝐜𝐭 𝐩𝐫𝐢𝐜𝐞) - 𝐓𝐫𝐚𝐝𝐞 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭𝐬/ 𝐯𝐨𝐥𝐮𝐦𝐞 𝐫𝐞𝐛𝐚𝐭𝐞𝐬 - 𝐒𝐚𝐥𝐞𝐬 𝐫𝐞𝐭𝐮𝐫𝐧𝐬 - 𝐓𝐚𝐱𝐞𝐬/ 𝐃𝐮𝐭𝐢𝐞𝐬.

Let's understand meaning of each sub-line item: 🔖

*Sales Price/ Contract price - Price at which the good/ service is sold/ rendered respectively

*Trade discounts - Discount offered to retail customers

*Volume Rebates- Discount offered to customers for buying in bulk volumes

*Cash discount- Discount to customers if customers pay advance/ full cash payment on invoice date for the entire goods bought/ services availed.

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~20 views

To get more clarity on how revenue is exactly recognized, one should read the revenue recognition policy of the company. E.g of HUL in the snapshot below:

Also, under new accounting standards, it is mandatory for firms to disclose a breakup and computation of Revenue from the Contract price (sales of product & service). Look at HUL’s contract disclosure👇

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~20 views

𝐎𝐭𝐡𝐞𝐫 𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐫𝐞𝐯𝐞𝐧𝐮𝐞𝐬:
Incentives/income which the company receives only because of its business operations. It consists of:

* Export Incentive: Generally offered by Governments to encourage industries to export their products or services globally/ to a selected region/ country.

* Claims Received: A claim is an official request as part of insurance or other legal claims for payment which the company demands for the goods which are usually damaged

* Sales tax incentives: Excemptions/ Refund of the state sales tax if co. is engaged in product categories like renewable energy equipment etc.

* Interest subsidy: Amount that the government is offering to incentivize the borrowers for conducting their operations
For example Interest Subsidy for MSME Units in Gujarat: Through this scheme, an interest subsidy of up to 7% for micro-enterprises and 5% for SMEs is provided.

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

𝐈𝐈 𝐎𝐭𝐡𝐞𝐫 𝐈𝐧𝐜𝐨𝐦𝐞:
Let’s take a look at what falls under the "Other Income" item on the Income statement from footnote 25 in HUL📍

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

Interest Income: is classified as Other Income (i.e. Non-Operating Income) unless you are in the Banking industry and its core business.

Dividend Income: is classified as Non-Operating Income unless you are a holding company i.e. it’s your business to invest shareholder’s money in some other companies and grow them.

P.S: There are other line items like hedging gains also that are included in other income. We will discuss this separately in another thread 🤞

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

So, to summarize: ⛳

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Finnacle Shah Classes

@finnacle_shah_classes

4 years ago ~10 views

Now that we have understood how companies present and calculate revenue figures, the question is, should we take their reported Operating revenue as Revenue for our analysis? 𝗡𝗼!

So, in our next post, we will cover how to understand the adjustment that needs to be done to make revenue numbers useful for analysis✨

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