Welcome to Ask Fear and Agreed, where we take your questions and do our very best to answer them. I'm Michael Thompson, and good afternoon, Sean Aylmer.

Welcome to Ask Fear and Agreed, where we take your questions and do our very best to answer them. I'm Michael Thompson, and good afternoon, Sean Aylmer.

Good afternoon, Michael. Sean.

Good afternoon, Michael. Sean.

Today's question comes from Liam on Facebook, and you can do it through Facebook or LinkedIn or Instagram, or you can head to Fear and Greed dot commodo you if you've got your own questions, sent it in through there. We love getting questions, we love answering them. And how about this one, Sean? He says, something I wonder every time we get to earning season, so it's a very timely question from Liam. This one. He says. We hear companies talking about net profit and underlying profit, but what's the difference? And yes, he says, I've googled it before. But the question that Google can't really answer for me satisfactorily is which one actually matters.

Today's question comes from Liam on Facebook, and you can do it through Facebook or LinkedIn or Instagram, or you can head to Fear and Greed dot commodo you if you've got your own questions, sent it in through there. We love getting questions, we love answering them. And how about this one, Sean? He says, something I wonder every time we get to earning season, so it's a very timely question from Liam. This one. He says. We hear companies talking about net profit and underlying profit, but what's the difference? And yes, he says, I've googled it before. But the question that Google can't really answer for me satisfactorily is which one actually matters.

That's because it is an unanswerable question. It all depends where you're coming from. On this one, it's it is a cracking quest es Lamb. So in theory, the net profit includes everything bottom line, end of the day, this is how much money we made there you go underlying profit excludes a bunch of things that are considered one off, like just happened in that six months or that twelve months, so we're not going to do it again. It might be an extraordinary item, non recurring items. The idea is that you take all these odds and sods out and the actual core business, how earning is going in the core business is reflected in underlying profit. Okay in theory, so underlying profit is you know, this should be repeated next year, net profit. It actually includes the one off things. The argument is what can be left out of underlying profit? Right, So redundancy payments they tend to be below the line, so they're not in underlying profit, but the company still has to make that redundancy payment. There's still loss. It's real money read physical money that needs to be transferred totally totally. Remember we talked about the rets the real estate investment trusts, and we talk about the revaluations and how huge they are, so they're they're often not in underlying earnings, but they're sort of revaluation of physical property, intellectual property, that type of stuff. When we worked I used to work in newspapers, the value of the mass had always always revalued down that sort of stuff is kept out charges from restructuring. There are rules, but really it's up to the company to interpret them. So you end up with all sorts of things in that the difference between underlying and net, all sorts of things that some people would put in others wouldn't. It's not I mean, it's not very clear. So it's a great question.

That's because it is an unanswerable question. It all depends where you're coming from. On this one, it's it is a cracking quest es Lamb. So in theory, the net profit includes everything bottom line, end of the day, this is how much money we made there you go underlying profit excludes a bunch of things that are considered one off, like just happened in that six months or that twelve months, so we're not going to do it again. It might be an extraordinary item, non recurring items. The idea is that you take all these odds and sods out and the actual core business, how earning is going in the core business is reflected in underlying profit. Okay in theory, so underlying profit is you know, this should be repeated next year, net profit. It actually includes the one off things. The argument is what can be left out of underlying profit? Right, So redundancy payments they tend to be below the line, so they're not in underlying profit, but the company still has to make that redundancy payment. There's still loss. It's real money read physical money that needs to be transferred totally totally. Remember we talked about the rets the real estate investment trusts, and we talk about the revaluations and how huge they are, so they're they're often not in underlying earnings, but they're sort of revaluation of physical property, intellectual property, that type of stuff. When we worked I used to work in newspapers, the value of the mass had always always revalued down that sort of stuff is kept out charges from restructuring. There are rules, but really it's up to the company to interpret them. So you end up with all sorts of things in that the difference between underlying and net, all sorts of things that some people would put in others wouldn't. It's not I mean, it's not very clear. So it's a great question.

So it's a bad then, So listening to that, it sounds so kind of ambiguous. Yes, and it would vary so much from company to company in terms of what they are able to exclude or willing to exclude because it has opened somewhat to their interpretation. Is a good thing is does it make it hard to compare kind of like for like?

So it's a bad then, So listening to that, it sounds so kind of ambiguous. Yes, and it would vary so much from company to company in terms of what they are able to exclude or willing to exclude because it has opened somewhat to their interpretation. Is a good thing is does it make it hard to compare kind of like for like?

So sometimes it's good. So let's say a company sells an asset, makes one hundred million dollars, sells an asset for fifty million dollars. Therefore it's got a profit a bottom line of one hundred and fifty million dollars. That's true, but the following year it's going to get back to that hundred and So the idea is that you that's not in the underlying earnings it's sort of outside that, and so the recurring earnings is about underlying so you take it out. So sometimes it's actually a good thing. Yep, Sometimes it's bad because company can slip things into extraordinary items that maybe shouldn't be there. Now, when some of our guests come on the show and they talk about quality of earnings, this is kind of what they're talking about. How people have put their profit and loss statement together and where they've chucked stuff and if they've chucked it kind of in extraordinary items. But yeah, last year it was actually in underlying earnings. It suggests the quality of earnings ain't so good. And when you have a market like we have at the moment, where interest rates have been high for a while now and some companies are really struggling, they start fudging would be far too strong a word, Michael, far too strong a word, but leaning towards putting things where they shouldn't Well.

So sometimes it's good. So let's say a company sells an asset, makes one hundred million dollars, sells an asset for fifty million dollars. Therefore it's got a profit a bottom line of one hundred and fifty million dollars. That's true, but the following year it's going to get back to that hundred and So the idea is that you that's not in the underlying earnings it's sort of outside that, and so the recurring earnings is about underlying so you take it out. So sometimes it's actually a good thing. Yep, Sometimes it's bad because company can slip things into extraordinary items that maybe shouldn't be there. Now, when some of our guests come on the show and they talk about quality of earnings, this is kind of what they're talking about. How people have put their profit and loss statement together and where they've chucked stuff and if they've chucked it kind of in extraordinary items. But yeah, last year it was actually in underlying earnings. It suggests the quality of earnings ain't so good. And when you have a market like we have at the moment, where interest rates have been high for a while now and some companies are really struggling, they start fudging would be far too strong a word, Michael, far too strong a word, but leaning towards putting things where they shouldn't Well.

I was interested to hear that then, these kind of extraordinary items. As a business journalist, when you were tasked with going through companies results, it was difficult. Is it hard to then try and figure out, Okay, should this be here? Should this not be here? But also, is it a little bit of a beacon to say, hey, look look at this. Look look what's kind of been tucked in here.

I was interested to hear that then, these kind of extraordinary items. As a business journalist, when you were tasked with going through companies results, it was difficult. Is it hard to then try and figure out, Okay, should this be here? Should this not be here? But also, is it a little bit of a beacon to say, hey, look look at this. Look look what's kind of been tucked in here.

So I was never smart enough to work out exactly what is and what isn't there, Like you need someone with serious clout in accounting rules to know. What you could do was look at the percentage relative to total earnings that was below underlying earnings, and so suddenly you know, the extraordinary stuff was like five three percent, four percent, twenty seven percent, and there wasn't an asse at sale or anything. You think, oh, hold on, that's a bit weird. Well, and then suddenly please explain. So, yeah, it is a contest. In the last few years has come under enormous criticism really for some of the way they have accounted for some things. And I mean, I'm they're not They would have a good argument why they did it, so I'm not saying they're wrong, But then others would say no, no, no, that's not how you do it. So great question, Liam, This.

So I was never smart enough to work out exactly what is and what isn't there, Like you need someone with serious clout in accounting rules to know. What you could do was look at the percentage relative to total earnings that was below underlying earnings, and so suddenly you know, the extraordinary stuff was like five three percent, four percent, twenty seven percent, and there wasn't an asse at sale or anything. You think, oh, hold on, that's a bit weird. Well, and then suddenly please explain. So, yeah, it is a contest. In the last few years has come under enormous criticism really for some of the way they have accounted for some things. And I mean, I'm they're not They would have a good argument why they did it, so I'm not saying they're wrong, But then others would say no, no, no, that's not how you do it. So great question, Liam, This.

Is a fantastic question. And I know we kind of veered off in a few different directions, but goodness me, I find that interesting. Unlike us, Liam, I hope, I hope that you have been able to get a better answer out of Sean than you have been able to get out of Google. I think so this is certainly more context, certainly more words used.

Is a fantastic question. And I know we kind of veered off in a few different directions, but goodness me, I find that interesting. Unlike us, Liam, I hope, I hope that you have been able to get a better answer out of Sean than you have been able to get out of Google. I think so this is certainly more context, certainly more words used.

Yeah, so when I googled this, when I saw this question was coming, because I think it was interested that he googled it. And there is plenty of Google black and white answers. Yeah, but there's no Google like. It doesn't explain all the gray and there's a lot of gray.

Yeah, so when I googled this, when I saw this question was coming, because I think it was interested that he googled it. And there is plenty of Google black and white answers. Yeah, but there's no Google like. It doesn't explain all the gray and there's a lot of gray.

Yeahs. And that's where the fun is exploring all of that, isn't it. Anyway? Thank you very much Liam for the question, and thank you Sean for answering it. Thank you Michael, And remember, if you've got something that you would like to know, then please send your question on through Even if it's something that you've asked Google before and you just want a bit more context and you want to know how it actually applies to you and to your business or to your life, then send it on through LinkedIn, Instagram, Facebook, or a Fear and Greed dot com dot au. Are Michael Thompson and this ask Fear and Greed

Yeahs. And that's where the fun is exploring all of that, isn't it. Anyway? Thank you very much Liam for the question, and thank you Sean for answering it. Thank you Michael, And remember, if you've got something that you would like to know, then please send your question on through Even if it's something that you've asked Google before and you just want a bit more context and you want to know how it actually applies to you and to your business or to your life, then send it on through LinkedIn, Instagram, Facebook, or a Fear and Greed dot com dot au. Are Michael Thompson and this ask Fear and Greed