Chapter 16 · Part 16 — How the Statements Connect
How the Statements Connect
Eight linkages, fourteen ties, and one number traced to thirteen destinations.
46 of 51 · 11 min
Seven statements, one bank. Nothing stands alone. This Part traces every linkage, so you can move between statements with confidence — and so a failed tie tells you immediately where to look.
The complete map
┌─────────────────────────────────────────────┐
│ STATEMENT OF PROFIT OR LOSS │
│ Profit for the period │
└──────────────┬──────────────────────────────┘
│
┌────────────────────┼────────────────────┬──────────────┐
│ │ │ │
▼ ▼ ▼ ▼
┌──────────────────┐ ┌──────────────────┐ ┌──────────────┐ ┌──────────┐
│ OCI STATEMENT │ │ SoCE │ │ DISTRIBUTABLE│ │ RATIOS │
│ Profit + OCI │ │ Retained earnings│ │ PROFIT │ │ EPS ROE │
│ = Total │ │ movement │ │ Appropriations│ │ ROA PE │
│ comprehensive │ │ │ │ + regulatory │ │ │
│ income │ │ │ │ adjustments │ │ │
└────────┬─────────┘ └────────┬─────────┘ └──────┬───────┘ └──────────┘
│ │ │
└──────────┬──────────┘ │
▼ │
┌─────────────────────────┐ │
│ BALANCE SHEET — EQUITY │◄───────────────┘
│ Share capital │ (distributable profit
│ Reserves │ ties to retained
│ Retained earnings │ earnings)
└────────────┬────────────┘
│
┌────────────▼────────────┐
│ BALANCE SHEET │
│ Assets = Liabilities │
│ + Equity │
└────────────┬────────────┘
│
┌────────────▼────────────┐
│ CASH FLOW STATEMENT │
│ explains the movement │
│ in "Cash and cash │
│ equivalent" │
└─────────────────────────┘
┌─────────────────────────┐
│ SEGMENT NOTE │ → PBT total = P&L PBT
│ │ → assets total = total assets
└─────────────────────────┘The eight primary linkages
LINKAGE 1 — Profit → Retained Earnings → Equity
P&L: Profit for the period 4,013,671
│
▼
SoCE: entered in the RETAINED EARNINGS column 4,013,671
│
▼
Balance sheet: Total equity increases 4,013,671
(before appropriations and distributions)
! BUT the balance-sheet retained earnings rose only NPR (28,385) —
it FELL — because:
− Transfer to reserves (2,205,386)
− Bonus shares capitalised (918,335)
− Cash dividend paid (918,335)
───────────
Net change in retained earnings (28,385)
⇒ PROFIT ≠ THE CHANGE IN RETAINED EARNINGS.
The SoCE is what reconciles them.LINKAGE 2 — OCI → Reserves → Equity
OCI statement: Other comprehensive income, net of tax (210,053)
│
▼
SoCE: split across RESERVE columns by nature
Fair value reserve (173,367)
Other reserve (36,686)
─────────
(210,053) OK
│
▼
Balance sheet: Reserves reduced by (210,053)
! OCI NEVER enters retained earnings directly, and NEVER
affects EPS. It lands in reserves.LINKAGE 3 — Depreciation → Expense → PPE → Cash flow
PURCHASE (year 1) Balance sheet: PPE +203,336 Cash flow: Investing −203,336 ← cash moves ONCE P&L: nothing yet DEPRECIATION (every year) P&L: D&A expense −368,009 Balance sheet: PPE carrying amount falls Cash flow: NOTHING ← non-cash ⇒ ONE cash outflow, FIVE years of P&L expense. The cash flow statement and the P&L describe the same purchase completely differently. THE DIRECT-METHOD NOTE: depreciation does not appear on the face of a direct-method cash flow statement (that is an indirect-method add-back). The report's basis note explains it: "operating profit is adjusted for effects of non-cash transactions such as depreciation and loan losses."
LINKAGE 4 — ECL → Impairment → Profit → Equity → Capital
NFRS 9 / NRB higher-of computation
│
▼
P&L: Impairment charge (2,345,056)
│
┌───────────────┼───────────────┐
▼ ▼ ▼
Balance sheet: Profit falls Deferred tax
Allowance rises by 2,345,056 asset rises
Net loans fall (1,641,539 (703,517 at 30%)
after tax)
│
▼
SoCE: Retained earnings lower
│
▼
Balance sheet: Equity lower
│
▼
RATIOS: CET1 ▼ · RWA ▲ (impaired exposures weigh more [R])
⇒ CAR ▼▼ — the double hit
Coverage ▲ · Credit cost ▲
CASH FLOW: NOTHING — impairment is non-cash
⇒ A single impairment charge touches SIX places and
the cash flow statement is not one of them.LINKAGE 5 — Dividend → Retained Earnings → Cash → Equity → Capital
AGM APPROVAL
SoCE: Retained earnings (918,335)
Balance sheet: Dividend payable +918,335
P&L: NOTHING — never an expense
PAYMENT
Balance sheet: Cash (918,335)
Dividend payable (918,335)
Cash flow: Financing: Dividends paid (918,335)
RATIOS: Equity ▼ → CET1 ▼ → CAR ▼
NLA ▼
Book value per share ▼
EPS — (profit unaffected)
Distributable profit carried forward ▼
⇒ FIVE statements touched. The P&L is not one of them.LINKAGE 6 — Share issue → Cash → Share Capital → Equity → Capital
PNCPS ISSUE (cash)
Balance sheet: Cash +3,000,000
Share capital +3,000,000
SoCE: "Others (NMB PNCPS 8.25%)" +3,000,000
Cash flow: Financing: Receipt from issue of shares
+3,000,000
P&L: NOTHING
RATIOS: AT1 ▲ → Tier 1 ▲ → CAR ▲
CET1 — (AT1 is NOT common equity)
EPS — (PNCPS are not ordinary shares)
! But the PNCPS DIVIDEND is deducted from earnings
in EPS, ROE and distributable profit
BONUS SHARE ISSUE (non-cash)
SoCE: Retained earnings (918,335)
Share capital +918,335
Total equity UNCHANGED
Cash flow: ABSENT — correctly excluded (NAS 7)
P&L: NOTHING
RATIOS: Total equity — · CET1 — · CAR —
Shares ▲ → EPS ▼ AND all prior periods restated
Distributable profit ▼ PERMANENTLY
⇒ Two "share issues," completely different consequences.
One appears in the cash flow statement; one must not.LINKAGE 7 — Loan growth → Assets → Interest income → Profit → Capital
Loans and advances +21,303,625 (Bank, year on year)
│
┌─────┴──────┬─────────────┬──────────────┬─────────────┐
▼ ▼ ▼ ▼ ▼
Balance Cash flow: P&L: RATIOS: Distributable
sheet: Operating Interest CD ratio ▲ profit:
Assets ▲ OUTFLOW income ▲ RWA ▲ uncollected
(23,122,651) Stage 1 CAR ▼ interest
ECL ▲ NPL base ▲ stripped out
(Part 7.9)
⇒ Growth is simultaneously:
an ASSET increase, a CASH outflow, an INCOME source,
an IMPAIRMENT charge, a CAPITAL consumer, and a
DISTRIBUTION constraint.
THE PARADOX WORTH INTERNALISING:
A profitable, fast-growing bank shows NEGATIVE operating
cash flow and a FALLING capital ratio — and both are
symptoms of success, not distress.LINKAGE 8 — Deposit growth → Liabilities → Funding → Liquidity
Deposits from customers +34,191,987 (Bank)
│
┌─────┴──────┬─────────────┬──────────────┬──────────────┐
▼ ▼ ▼ ▼ ▼
Balance Cash flow: P&L: RATIOS: Balance
sheet: Operating Interest CD ratio ▼ sheet:
Liabs ▲ INFLOW expense ▲ NLA ▲ Due from
+34,191,987 CRR ▲ [R] NRB ▲
Cost of funds
depends on MIX
⇒ Deposit growth MECHANICALLY forces the NRB balance up
(CRR is computed on deposits [R]), consuming part of the cash
it brought in.
THE FUNDING EQUATION MADE VISIBLE:
Deposits taken +34,191,987
Loans given (23,122,651)
────────────
Net funding surplus +11,069,336 → deployed into securitiesInvestment securities — the four-way split
The same asset behaves in four completely different ways depending on classification. This is the most consequential single decision in NFRS 9 and it is worth seeing all four side by side.
┌─────────────────┬──────────┬──────────┬──────────┬────────────┐ │ │ AMORTISED│ FVOCI │ FVOCI │ FVTPL │ │ │ COST │ (DEBT) │ (EQUITY) │ │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Balance sheet │Amortised │Fair value│Fair value│ Fair value │ │ │ cost │ │ │ │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Interest income │ P&L │ P&L │ — │ In fair │ │ │ (EIR) │ (EIR) │ │ value │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Dividends │ — │ — │ **P&L** │ P&L │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Fair value │ NOT │ OCI │ OCI │ P&L │ │ changes │recognised│ │ │ │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ ECL applies? │ YES │ YES │ NO │ NO │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ On DISPOSAL │ Gain/loss│ RECYCLED │ NEVER │ Already in │ │ │ to P&L │ to P&L │ recycled;│ P&L │ │ │ │ │ transfer │ │ │ │ │ │ within │ │ │ │ │ │ equity │ │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Effect on EPS │ YES │ YES │ **NO** │ YES │ ├─────────────────┼──────────┼──────────┼──────────┼────────────┤ │ Cash flow │ Investing│ Investing│ Investing│ Investing │ │ classification │ │ │ │ (or oper- │ │ │ │ │ │ ating if │ │ │ │ │ │ trading) │ └─────────────────┴──────────┴──────────┴──────────┴────────────┘ ! THE CRITICAL COLUMN IS FVOCI-EQUITY. A gain can be realised in cash with ZERO effect on profit or EPS — visible only in the SoCE and in distributable profit. NMB's equity portfolio swung NPR 937 million negative year-on-year with no impact on its reported EPS of NPR 28.47.
The Group ↔ Bank bridge
Every Group-vs-Bank difference traces to consolidation.
┌──────────────────────────────────────────────────────────────────────┐ │ LINE GROUP BANK DIFFERENCE = ? │ ├──────────────────────────────────────────────────────────────────────┤ │ Investment in │ │ subsidiaries − 772,488 ELIMINATED on │ │ consolidation │ │ │ │ Loan and advances │ │ to B/FIs 9,424,047 12,015,936 = 2,591,889 │ │ = the loan to NMB │ │ Laghubitta OK │ │ │ │ Borrowing 5,427,614 1,926,875 subsidiaries' own │ │ external borrowing │ │ added │ │ │ │ Share premium 37,216 − arose in a subsidiary │ │ │ │ Non-controlling │ │ interest 530,872 − 49% of NMB Laghubitta │ │ │ │ Fees and commission │ │ income (YTD) 3,221,195 2,830,190 = 391,005 │ │ = subsidiaries' fee │ │ income (merchant │ │ banking, brokerage, │ │ asset management) │ │ │ │ Basic EPS 28.47 20.18 = NPR 8.29 earned in │ │ subsidiaries │ │ │ │ Net operating │ │ cash flow (10,461,461) 1,978,418 = 12,439,879 │ │ = the subsidiaries are │ │ cash-hungry │ │ │ │ NPL ratio 5.18% 4.91% subsidiaries have │ │ weaker asset quality │ │ Provision coverage 88.04% 92.57% and are less well │ │ provided │ └──────────────────────────────────────────────────────────────────────┘ ⇒ READ BOTH COLUMNS, ALWAYS. Each difference is a finding. The NPL and coverage gaps in particular say something the consolidated numbers alone would not.
Every number in the report, traced to its sources
Take one figure — Profit for the period, NPR 4,013,671 thousand — and see how many places it appears or drives:
PROFIT FOR THE PERIOD NPR 4,013,671
│
├─→ P&L the bottom line
├─→ OCI statement the opening line
├─→ SoCE retained earnings column
├─→ Distributable profit the starting line (Part 7.1)
├─→ Segment note reconciles to segment PBT less tax
├─→ Basic EPS numerator, less PNCPS dividend
├─→ ROE numerator
├─→ ROA numerator
├─→ PE ratio via EPS
├─→ General reserve 20% appropriated [R]
├─→ Regulatory reserve 17.7% appropriated
├─→ Cash flow NOT directly — the direct method
│ starts from actual receipts
└─→ CET1 via retained earnings
⇒ ONE NUMBER, THIRTEEN DESTINATIONS.
Change it and thirteen things move.The fourteen ties, consolidated
╔═══════════════════════════════════════════════════════════════════════╗ ║ TIE WHERE ║ ╠═══════════════════════════════════════════════════════════════════════╣ ║ 1. Assets = Liabilities + Equity Balance sheet ║ ║ 2. SoCE closing equity = balance sheet equity SoCE ↔ BS ║ ║ 3. SoCE profit row = P&L profit SoCE ↔ P&L ║ ║ 4. SoCE OCI row = OCI statement net figure SoCE ↔ OCI ║ ║ 5. Reserve transfer row nets to ZERO SoCE ║ ║ 6. Bonus share row nets to ZERO SoCE ║ ║ 7. CF closing cash = balance sheet cash CF ↔ BS ║ ║ 8. CF opening cash = prior-year BS cash CF ↔ prior BS ║ ║ 9. CF financing ≈ SoCE owner transactions CF ↔ SoCE ║ ║ (after removing non-cash bonus shares) ║ ║ 10. Distributable profit appropriations ║ ║ = SoCE reserve transfers DP ↔ SoCE ║ ║ 11. Distributable profit regulatory adjustments ║ ║ = SoCE regulatory reserve transfer DP ↔ SoCE ║ ║ 12. Distributable profit c/f = BS retained ║ ║ earnings (usually — verify, not guaranteed) DP ↔ BS ║ ║ 13. Segment PBT total = P&L profit before tax Seg ↔ P&L ║ ║ 14. Segment assets total = total assets; ║ ║ intersegment row nets to zero Seg ↔ BS ║ ╚═══════════════════════════════════════════════════════════════════════╝
What a failed tie tells you:
| Failed tie | Look here first |
|---|---|
| 1 | An arithmetic or transcription error — recount |
| 2, 3, 4 | A missing SoCE row, or OCI allocated to the wrong column |
| 5, 6 | A transfer recorded on one side only |
| 7, 8 | A restatement, a merger, or an FX reconciling item omitted |
| 9 | A non-cash owner transaction incorrectly included in the cash flow |
| 10, 11 | An appropriation posted to the wrong reserve |
| 12 | **Not necessarily an error** — retained earnings can legitimately contain non-distributable amounts. Investigate before concluding |
| 13, 14 | **Check the UNITS first** — the segment note uses NPR **millions** |
The linkage that matters most
╔═══════════════════════════════════════════════════════════════════════╗ ║ ║ ║ P&L PROFIT ──────────────────────────────► EPS NPR 20.18 ║ ║ │ ║ ║ │ less statutory appropriations (37.3%) ║ ║ │ less regulatory adjustments (17.7%) ║ ║ ▼ ║ ║ DISTRIBUTABLE PROFIT ────────────────────► NPR 9.08 per share ║ ║ ║ ║ ═══════════════════════════════════════════════════════════════ ║ ║ ║ ║ EPS is what the ACCOUNTANTS say the shareholders earned. ║ ║ Distributable profit per share is what the REGULATOR ║ ║ will let them have. ║ ║ ║ ║ In FY2082/83 the first ROSE 36.4% and the second FELL 12.3%. ║ ║ ║ ║ Every other linkage in this Part is mechanics. ║ ║ THIS ONE IS THE INVESTMENT CASE. ║ ║ ║ ╚═══════════════════════════════════════════════════════════════════════╝
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