What it is
Net profit is the number everyone quotes. It is total income minus every cost: interest paid, bad-loan provisions, running costs and tax.
It belongs to shareholders, but they do not get it all. At least 20% goes to the general reserve by law, some to the regulatory reserve by NRB rules, and only the remainder, the distributable profit, can be paid as dividend.
Net profit ÷ number of shares = EPS. Net profit ÷ equity = return on equity.
How it is calculated
Net profit = Profit before tax − Income tax expense.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's net profit for FY 2082/83 was Rs 790.58 crore. Over its 27,05,69,970 ordinary shares that is Rs 28.36 per share. On equity of Rs 7,190.66 crore it is a return on equity of 11.76%.
NABIL's share capital includes Rs 500.00 crore of preference shares, so per-share figures here use its 27,05,69,970 ordinary shares, as the filing does.
What good looks like
Growing steadily and, more importantly, growing per share. Judge the quality: profit driven by net interest income is repeatable; profit from a provision write-back or a one-off gain is not.
Watch out
- Compare the same period last year, not last quarter.
- Quarterly profit is unaudited; the audited year can be lower.
- Net profit is not distributable profit; dividends come from a smaller number.
- A merger raises net profit without raising profit per share.
In Nepal
Of net profit, BAFIA 2073 §44 requires at least 20% to the general reserve (10% once it is twice paid-up capital); NRB's 2082 dividend procedure then adds regulatory reserve transfers before any dividend can be approved.
Questions
Not necessarily. Dividends depend on distributable profit and NRB approval, and on how many shares exist.
Prices move on expectations. If investors expected more, or if the profit came from one-off items, the market may not reward it.