Not every shilling that lifts "profit before tax" came from selling something. Today you'll find a single line inside Safaricom's income statement that added over KShs 22 billion to profit without a single customer paying a single shilling — and learn why a careful reader always asks where a profit number actually came from.
So far in this course you've treated the figures on an income statement as things that happened: revenue is money customers paid, costs are money spent. Most lines are exactly that simple. But a few lines are neither revenue nor an ordinary cost — they're accounting adjustments that are real, audited, and legitimate, yet don't reflect the everyday business of selling a product or service. If you don't notice them, you can badly misread how a company actually performed.
Safaricom's FY2024 statement contains a textbook example: a line called hyperinflationary monetary gain, worth KShs 22,363.2 million.
Safaricom's Group results include its Ethiopian operation. Ethiopia has experienced very high inflation, and accounting rules require companies operating in "hyperinflationary" economies to restate their local financial results to account for the currency losing value so fast. One mechanical side-effect of that restatement is a paper gain (or loss) that gets booked straight into profit before tax — even though no customer paid extra money and no cost was avoided. It's an adjustment for holding monetary assets and liabilities while the local currency loses value quickly, not a reward for good business performance.
Below is the lower half of Safaricom's Group Statement of Profit or Loss for the year ended 31 March 2024, showing exactly where the hyperinflationary gain appears on the way down to profit before tax.
| KShs millions | FY2024 | FY2023 |
|---|---|---|
| Operating profit | 80,344.8 | 84,997.4 |
| Finance income | 5,459.4 | 6,686.7 |
| Finance costs | (22,101.1) | (13,773.8) |
| Share of loss of joint venture | (1,376.2) | (50.7) |
| Hyperinflationary monetary gain | 22,363.2 | 10,383.1 |
| Profit before income tax | 84,687.4 | 88,345.2 |
Source: Safaricom PLC Annual Report and Financial Statements 2024, p.177 (figures simplified/grouped for this lesson; audited, currency KShs millions).
Look at the size of that gain relative to the bottom line: KShs 22,363.2 million is about 26% of profit before income tax (84,687.4) in FY2024. It roughly doubled from FY2023's KShs 10,383.1 million. Without it, profit before tax would have been closer to KShs 62,324.2 million (84,687.4 minus 22,363.2) — a meaningfully smaller number, and one that would tell a different story about how the underlying business performed this year.
It's important not to overcorrect here. The hyperinflationary gain is a real, audited accounting entry, required by the accounting standard that applies to hyperinflationary economies (IAS 29) — Safaricom isn't hiding anything or doing anything wrong. The point isn't that this line is illegitimate. The point is that it isn't operating profit — it didn't come from selling airtime, data or M-PESA transactions — so lumping it in with "how well did the core business do this year?" would be misleading.
You already have two tools from earlier lessons that help you catch this kind of thing without needing to know every accounting standard by heart:
Later in this course you'll use profit figures to calculate ratios like the P/E ratio, which investors use to judge whether a share price looks reasonable. If a chunk of that profit came from a one-off or non-operating adjustment rather than the ordinary business of selling products, any ratio built on top of it inherits that distortion. Knowing that KShs 22,363.2 million of Safaricom's FY2024 profit before tax came from a currency-inflation adjustment, not from more people buying more airtime or data, is exactly the kind of detail that separates a careful read from a hopeful one.
Next lesson, we'll pull together every red flag you've spotted so far — profit falling while revenue rises, profit growing slower than operating cash flow, and now large non-operating gains inflating profit before tax — into one reusable checklist you can run against any company's statements.
Primary source for this lesson's numbers: Safaricom PLC Annual Report and Financial Statements 2024.
Something unclear, or want to dig into a line item we skipped (like "what exactly is IAS 29" or "how is the hyperinflationary gain calculated")? Ask your teacher — that's what these sessions are for.