What Kind of Items Are Posted in

the Income Statement?

Original post by Cynthia Gomez of Demand Media
Income statements, sometimes referred to as profit and loss statements, explain how much money a
company made and how much it lost during a specified time period, usually a year. Shareholders use this
financial document to decide whether to keep their money invested in a company, and investors use it to
determine whether to invest in a company.

Revenue

The income statement shows much money a company earned

during the time period covered by the statement. This is the total
sales made, also called the gross revenue. However, this alone
does not tell the total picture of how profitable the company was for
that period. Thus, the revenue must be looked at in relation to the
other parts of the income statement.
Costs and Expenses

The income statement also states how much money the company
had to spend to make the revenue listed in the statement. This
might include equipment outlay, money spent on a lease or
commercial mortgage and wages paid to workers. By knowing how
much it cost a company to make the revenues reported in the
income statement, shareholders and investors get a better idea of
the company's actual profits.
Allowances and Depreciation

This section of the income statement shows what money the

company is not expecting to collect. This could include money
discounted from sold merchandize on clearance and goods that
were returned and can't be resold because they are damaged. In
other words, this refers to losses. Depreciation also gets deducted
from the gross revenue. This refers to value lost on assets like

machinery and tools used to produce the goods sold or services

rendered by the company.
Earnings Per Share

While companies rarely distribute all their net earnings to

shareholders because they must reinvest in earnings into their
operations, the Earnings Per Share calculation tells shareholders
how much money they would get if the company was to do so.
The Bottom Line

At the end of the income statement, once you see the total revenue,
deduct the cost and expenses, and allowances and depreciation,
you see what is actually left in profits during the stated period. This
is the company's net revenues or margin.
Suppose the Index consists of only 2 stocks: Stock A and Stock B.
Suppose company A has 1,000 shares in total, of which 200 are held by the promoters,
so that only 800 shares are available for trading to the general public. These 800 shares
are the so-called 'free-floating' shares.
Similarly, company B has 2,000 shares in total, of which 1,000 are held by the
promoters and the rest 1,000 are free-floating.
Now suppose the current market price of stock A is Rs 120. Thus, the 'total' market
capitalisation of company A is Rs 120,000 (1,000 x 120), but its free-float market
capitalisation is Rs 96,000 (800 x 120).
Similarly, suppose the current market price of stock B is Rs 200. The total market
capitalisation of company B will thus be Rs 400,000 (2,000 x 200), but its free-float
market cap is only Rs 200,000 (1,000 x 200).
So as of today the market capitalisation of the index (i.e. stocks A and B) is Rs 520,000
(Rs 120,000 + Rs 400,000); while the free-float market capitalisation of the index is Rs
296,000. (Rs 96,000 + Rs 200,000).
The year 1978-79 is considered the base year of the index with a value set to 100. What
this means is that suppose at that time the market capitalisation of the stocks that
comprised the index then was, say, 60,000 (remember at that time there may have been

some other stocks in the index, not A and B, but that does not matter), then we assume
that an index market cap of 60,000 is equal to an index-value of 100.
Thus the value of the index today is = 296,000 x 100/60,000 = 493.33
This is how the Sensex is calculated.
The factor 100/60000 is called index divisor.
Free-float market capitalization is defined as that proportion of total shares issued by the
company that are readily available for trading in the market.

ISIN
DEFINITION of 'International Securities Identification Number - ISIN' A code that uniquely
identifies a specific securities issue.

Insider trading
the illegal practice of trading on the stock exchange to one's own advantage through
having access to confidential information.

Splits
A corporation whose stock is performing well may opt to split its shares, distributing additional shares
to existing shareholders. The most common split is two-for-one, in which each share becomes two
shares. The price per share immediately adjusts to reflect the change, since buyers and sellers of
the stock all know about the split (in this case, it would be cut in half). A company will usually decide
to split its stock if the price of the stock gets very high. High stock prices are problematic for
companies because they make it seem as though the stock is too expensive. By splitting a stock,
companies hope to make their equity more attractive, especially to those investors that could not
afford the high price.
Stocks can be split two-for-one, ten-for-one, or in any ratio the company wants. (The less common
reverse split is when the number of shares decreases, for example one-for-two.) To illustrate what
happens when a stock splits, lets look at a simple example. Say you own 100 shares of stock in

XYZ Corp. that are priced at $100 per share. XYZ decides that $100 per share is too high of a price
for its stock, so it issues a two-for-one stock split. This means that for every share that you
previously owned, you now own two shares, giving you 200 shares. When the stock splits, the price
will be cut in proportion to the split ratio that was chosen by the corporation (in this case, to $50 a
share). If you compare the amount of your investment before the split and the amount after the split
you will notice that they are equal (100 shares x $100/share = $10,000; which is the same as 200
shares x $50/share = $10,000). So, in effect, nothing has changed from your perspective.

Buy back
A buyback is a corporations repurchase of stocks or bonds that it has previously issued. In the case
of stocks, this reduces the number of shares outstanding, giving each remaining shareholder a
larger percentage ownership of the company. This is usually considered a sign that the companys
management is optimistic about the future and believes that the current share price is undervalued.
Companies may decide to repurchase stock for many reasons. They may be attempting to improve
the price to earnings ratio by reducing market capitalization, or they may want to offer the stock as
an incentive to employees . Its important to note that when a companys shareholders vote to
authorize a buyback, they arent obliged to actually undertake the buyback. Some companies
announce buyback plans as a sign of confidence, but its meaningless unless they actually go
through with the repurchase.

DEFINITION OF 'DEMATERIALIZATION - DEMAT'

The move from physical certificates to electronic book keeping. Actual stock
certificates are slowly being removed and retired from circulation in exchange for
electronic recording.

ESTOPEDIA EXPLAINS 'DEMATERIALIZATION - DEMAT'

With the age of computers and the Depository Trust Company, securities no
longer need to be in certificate form. They can be registered and transferred
electronically.
Benifits

1.No stamp duty for transfer of securities in the Depository System. In the case of physical
shares, stamp duty of 0.25% of sale value is payable on transfer of shares.

2.Elimination of bad deliveries and all risks associated with physical certificates such as loss
in transit, theft, mutilation, damage, etc

Depository
it can refer to a company, bank or an institution that holds and facilitates the
exchange of securities. Or a depository can refer to a depository institution that is
allowed to accept monetary deposits from customers.
In India, a Depository Participant (DP) is described as an agent of thedepository.
They are the intermediaries between the depository and the investors. The relationship
between the DPs and the depository is governed by an agreement made between the
two under the Depositories Act.
What are the benefits of participation in a depository?
1. Immediate transfer of securities(stock, shares, debenture, bonds, units etc);
2. No stamp duty on transfer of securities;
3. Elimination of risks associated with physical certificates such as bad delivery , fake securities , etc.;
4. Reduction in paperwork involved in transfer of securities;
5. Reduction in transaction cost;
6. Nomination facility;
7. Change in address recorded with DP gets registered electronically with all companies in which investor
holds securities eliminating the need to correspond with each of them separately;
8. Transmission of securities is done by DP eliminating correspondence with companies;
9. Convenient method of consolidation of folios/accounts ;
10. Holding investments in equity, debt instruments and Government securities in a single account;
11. Automatic credit into demat account, of shares, arising out of split/consolidation/merger etc.

DEFINITION OF 'CUSTODIAN'
A financial institution that holds customers' securities for safekeeping so as to
minimize the risk of their theft or loss. A custodian holds securities and other

assets in electronic or physical form. Since they are responsible for the safety of
assets and securities that may be worth hundreds of millions or even billions of
dollars, custodians generally tend to be large and reputable firms.

Transposition-cum-demat
Transposition-cum-demat facility enables an investor to transpose names of the joint holders in
desired order along with the process of dematerialisation of certificates. Transposition opened.No
new name can be added through transposition process. Similarly, existing names cannot be
deleted....Transposition-cum-demat facility enables an investor to transpose names of the joint
holders

Transmission-cum-demat
Transmission-cum-demat facility enables an investor to
dematerialize securities held in joint names in a Beneficial
owner account opened in the names of same joint holders in
the event of death of a joint holder.

'Market Trades'
and 'Off Market Trades'
Any trade settled through a clearing corporation is termed as the 'Market Trade'.
These trades are done through stock brokers on a stock exchange. 'Off Market
Trade' is one which is settled directly between two parties without the involvement of
clearing corporation.

What settlement details are required on

the delivery instruction slip?

Each of these settlements is identified by the combination of the market type and
the settlement number. You are required to mention the appropriate settlement
details on the delivery instruction slip while transferring the shares to your
broker's account.

How many times can one buy and sell within a settlement cycle?

It's possible to buy and sell within a settlement cycle many times, which is what traders do. They settle only their net outstanding position

What is Pay-in?
A.
In Pay-in of securities all the shares' obligations are picked up from the client's beneficiary
account and transferred to Broker pool account. All the shares are then delivered to the
clearing corporation as per obligation with Exchanges.
In Pay-in of funds , the funds are transferred from a client's bank account to Broker bank
account. All the funds are then transferred to the clearing corporation as per obligation.
Q.
What is Pay-out?
A.
In Pay-out of securities, shares are received from the Clearing corporation and the same is
transferred to Broker pool account. All the shares are then transferred to the client
beneficiary account.
In Pay-out of funds, funds are transferred from the Clearing corporation to Broker Bank a/c.
All the funds are then transferred to the client bank a/c.

A market in which buyers enter competitive bids and sellers enter competitive
offers at the same time. The price a stock is traded represents the highest price
that a buyer is willing to pay and the lowest price that a seller is willing to sell at.
Matching bids and offers are then paired together and the orders are executed.