Divisible Profits

Reference to public announcements (in Newspapers, for example) will indicate the order in which the financial results of the period's operation by a firm are given. The sequence indicates, wherever implicit, the priority among the charges on the incomes and revenues. A typical listing will be in the order as indicated (admitting for minor variations). 

(a) Sales and Other Revenues (including Profits/Revenues from sale of Manufacturing Units) 

(b)  Other Income 

(c) Total (Income) = (a) + (b) 

(d)  Total Expenditure (Before Amortization, Interest and Depreciation) 

(e)  Gross Profit before Amortization, Interest and Depreciation = (c) - (d) 

(f) Amortization of Deferred Revenue Expenditure 

(g)  Gross Profit Before Interest and Financing Charges, Depreciation and Taxation = (e) - (f). 

[Also called Operating Profit] [PBIDT] 

(h)  Interest and Financing charges (Net) 

(i)  Gross Profit/Loss after Interest but before Depreciation and Taxation = (g) - (h) 

(j)  Depreciation (Net) 

(k)  Profit before Tax = (i) - (j) = (PBT) 

(1)  Provision for Taxes 

(m)  Net Profit after Tax = (k) - (1) = (PAT) 

(n)  Reserves excluding Revaluation Reserves 

(0)  Revaluation Reserves 

(p)  PAT less Reserves = (m) - [(n) + (o)] 

(q)  (Paid-up) Equity Share Capital. 

[(o) and (p) may be omitted; in that case, (n) and (q) may be interchanged.] 

The part of the profit available to shareholders is called divisible profits. [Note that it is called "divisible" implying that the whole of this need not be divided.] Strictly, legally, dividends should be declared, unless there are compelling reasons otherwise, only if profits remain after meeting all expenses [SI. (d)], and [Sl. (f)], also [Sl. (h)], depreciation on fixed as well as fluctuating assets [Sl. (j)], taxation [Sl. (I)], writing off past losses [not indicated - to be between S1. (m) and (n)] and after transfening a reasonable amount to reserves [Sls. (n) and (o)]. Profits of extra-ordinary nature, that is non-recurring profits arising from sale of fixed assets or redemption of long-term liabilities [indicated within brackets in S1. (a)], should not be distributed as dividend. The amount so derived, as will be seen at S1. (p) (subject to the statement in the previous sentence) divided by the number of ordinary shares implied in S1. (q) will be the maximum dividend payable (Earnings) per share (EPS). In this connection, prudence demands assets should not be revalued, at least not for the purpose of declaring a dividend though S1. (0) should be provided for as indicated hereinabove.