Share-based compensation

The accounting cost of paying employees in shares or options, charged to profit over the vesting period at the fair value on the grant date.

A firm expensing ₹45 crore against ₹615 crore of net profit is paying about 7.3% of its earnings in equity.

It is a non-cash charge and it is a real cost, and holding both ideas at once is what the line requires. No money leaves the company, so the cash flow statement adds it back. Value does leave the existing shareholders, because their claim on future profits has been diluted, and the share count rises to prove it.

The consistent treatment is to accept the expense in the income statement and use diluted share counts everywhere. Adjusted-earnings presentations that exclude the charge and then quote a per-share figure on basic shares have removed the cost twice.

For a young technology company this line can exceed operating profit.