It is amazing to see so many ‘investors’ who cannot even spell a balance sheet without doing a spell check. I was shocked to hear the conversation between 2 such investors in a train:

Investor 1: What is the difference between BSE and NSE?

Investor 2: Arre BSE lists only companies based in Mumbai, but the NSE lists companies on an all India basis

another conversation:

Trainer at a Life Insurance company: Subra Sir if the Nifty is at 5000 and the Sensex is at 15000, it means a company is 3 times more expensive on BSE than on NSE….correct? then why do people still buy at the BSE?

Well I decided that instead of being my usual critical self, I could start a series on

‘How to read a balance sheet….’ so here is the first part. No clue this would be how long, so I am not saying 1 of 3 or 1 of 5. Frankly I have no clue. It is going to be basic. Very basic….but hey you need to make a start, right?

When you need information about a company, you can go to its website, as well as to places like www.myiris.com, www.moneycontrol.com, www.valueresearchonline.com. On the website you will get a lot of information, but as a potential investor you want financial information. This is available in a document called the Annual Report.

This report is made once a year and it is like a progress report of the company, normally prepared for a year.

The contents of an annual report are as follows:

a) Profit and Loss account  b) Balance sheet and Cash Flow c) Auditor’s Report d) Director’s Report.

Apart from these it also contains the Chairman’s speech and Management Discussion and Analysis – the content in these are not mandatory but it does reveal a lot about the company.

Most of the companies have their annual report on their websites, however if there is a company which does not have it (simple do not invest in such a company anyway) you can get it from the MCA’s website (Ministry of Corporate Affairs).

More details to follow…

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. This is something that I was looking for some time. Thanks and hope this will help me in reading balance sheets and understand it.

  2. I will certainly read each and every bit of this series…thanks for explaining novice investor in layman language. I would request you to cite examples for each and every tricky parts. thanks for selfless service once again.

  3. Thanks Subra for initiating training on this topic.

    This is exactly what we from non finance background would like to learn and understand the market/terminologies/jargons…..

  4. subra sir,
    Requesting this series to be published with examples-
    We need to find out-How to differentiate between a great company and a great investment..

  5. Dear Sir,
    This would be the great start.It’s like “Teach a man how to fish….” kind of series! Waiting for it for long time.Thank you.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>