Module 2: Reading a company
Every listed company reports its results in three statements. Together they answer: did it earn money, what does it own and owe, and where did the cash go?
1. The profit and loss (P&L)
What it is. Revenue, minus costs, equals profit, over a period (a quarter or a year).
Where to find it. Quarterly results and the annual report on the company’s investor page and on NSE/BSE under “Corporate filings”.
How to read it. Start at the top line (revenue) and move down. Is revenue growing year on year? Are margins (profit as a share of revenue) stable or improving?
Common trap. One good quarter is a data point, not a trend. Compare with the same quarter last year, not the previous quarter.
2. The balance sheet
What it is. A snapshot on one date: what the company owns (assets) versus what it owes (liabilities) and what is left for shareholders (equity).
How to read it. Check borrowings against equity. A company with heavy debt has less room for error when business slows. Check whether cash and receivables look reasonable next to sales.
Common trap. Receivables growing much faster than revenue can mean customers are slow to pay.
3. The cash flow statement
What it is. The real cash that came in and went out, split into operations, investing, and financing.
How to read it. Over several years, cash from operations should broadly track reported profit. Profit with weak cash is worth questioning.
A quick checklist
- Is revenue growing over 3 to 5 years?
- Are margins stable or rising?
- Is debt manageable compared with equity and earnings?
- Does operating cash flow support the reported profit?
- Compare with 2 or 3 peers in the same sector, not with the whole market.
Try it
Pick one company you use as a customer. Open its latest annual report and write down revenue, profit, and borrowings for the last three years. What story do those three lines tell?
Educational explanation only. Not a recommendation about any company.