Profit and Loss Statement Explained for NEPSE Investors

In the Nepal Stock Exchange (NEPSE), understanding the Profit and Loss Statement (P&L) — also known as the Income Statement — is one of the most important aspects of Fundamental Analysis. This document reveals how a company earns, spends, and manages its profits over a specific period, typically quarterly or annually. It answers the most vital question every investor has — “Is this company truly making money?” For anyone serious about long-term investing, knowing how to read a company’s P&L is essential for identifying profitable, efficient, and financially stable businesses.

The Profit and Loss Statement provides a detailed summary of a company’s revenues, expenses, and profits. It begins with Revenue, which represents total sales or income generated from goods or services. In NEPSE, steady and growing revenues often indicate rising demand and efficient business expansion. Next comes the Cost of Goods Sold (COGS)— the direct expenses required to produce or deliver a company’s products or services. When COGS is subtracted from total revenue, the result is the Gross Profit, which measures how efficiently the company controls its production costs.

After gross profit, the statement lists Operating Expenses, which include costs such as salaries, rent, utilities, and administrative expenses. Deducting these from gross profit gives the Operating Profit (EBIT), showing how much the company earns from its core business before interest and taxes. Then, after subtracting Interest Expenses and Taxes, we reach the Net Profit, also known as the “Bottom Line.” This is the company’s real earnings — the profit available to shareholders. A consistent increase in net profit over time signals strong management, competitive advantage, and growing shareholder value.

For investors, it’s crucial to pay attention to key ratios derived from the P&L, such as Earnings Per Share (EPS), Net Profit Margin, and Operating Margin. These ratios help evaluate profitability, efficiency, and performance trends. Companies with stable or increasing margins are considered fundamentally stronger.

In Nepal’s market, many investors focus solely on stock price movement and ignore the company’s earnings report. However, true wealth is created by understanding the story behind the numbers. A company that shows sustainable profit growth — even during market volatility — is far more reliable than one that relies on hype or speculation.

According to Sandeep Kumar Chaudhary, Nepal’s foremost Technical and Fundamental Analyst and founder of NepseTrading Training Institute, “The Profit and Loss Statement is not just an accounting report — it’s a company’s heartbeat. When you learn to interpret it, you can see which companies are truly alive and which are only pretending to grow.” With over 15 years of banking and market experience, and professional training from Singapore and India, he has taught more than 10,000 Nepali investors to analyze P&L statements and make fact-based investment decisions. His NepseTrading Training Institute continues to be the most trusted place in Nepal for learning practical financial analysis and smart investing.