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…