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Module 1: Financial statements
Two shops both say “we made ₹10 lakh profit”. Shop A got the money in cash the same day. Shop B sold on credit and is still waiting for customers who may never pay. Same profit, very different shops. The three financial statements help you tell them apart.
How it connects. In Beginner you met the three statements. Here you learn what each one is for, how they link together, and how to spot a profit that looks good but is not real cash.
Tap or hover a picture to see what it means.
Every listed company publishes these three. Think of them as three different views of one business. Let us take them one at a time.
1. Profit and loss: the report card
The everyday idea. A shopkeeper asks at year end: “I sold goods, I paid my costs. What did I earn?” The profit and loss statement answers this. It starts with sales at the top and ends with the final profit at the bottom.
From sales to final profit, step by step. Example numbers, in rupees crore.
In plain words. Sales minus running costs gives the profit from the main business (called operating profit). Add side income such as bank interest. Subtract interest on loans and tax. What is left is net profit.
Where to find it. On NSE or BSE, search the company and open its financial results. Listed companies publish quarterly results within 45 days of the quarter end and full-year results within 60 days of the financial year end (SEBI listing rules, checked Oct 2026). The Indian financial year runs 1 April to 31 March, so Q1 means April to June.
Two things to check. The unit at the top (crore or lakh). And whether it says standalone (the company alone) or consolidated (the company plus its subsidiaries, which are smaller companies it owns).
Common trap. Profit that rises mostly because of side income or a one-time gain says little about how the real business is doing.
2. Balance sheet: the photo of one day
The everyday idea. Imagine writing down, on one date, everything the shop owns, everything it owes, and what is left for the owner. That list is the balance sheet. It is a photo, not a film: it shows one day only.
Always balanced: what we own = what we owe + what is left for the owners. Example numbers.
In plain words. Owns = owes + yours. The part that is “yours” is called equity or net worth.
Three things to look at.
- Loans against cash. Loans minus cash in the bank is the “net debt”. It tells you how much the company would still owe after using its cash.
- Receivables. Money customers still owe the company.
- Inventory and payables. Stock lying unsold, and bills the company still has to pay its suppliers.
Worked example. Customers owe ₹30 and yearly sales are ₹120. So ₹30 ÷ ₹120 × 365 = about 91 days. Customers take about 3 months to pay. If this number keeps growing year after year, payments are slowing down.
Common trap. Receivables growing much faster than sales. The company is selling, but not collecting.
3. Cash flow: the bank passbook
The everyday idea. Your passbook does not care what you “earned”. It only shows money that really came in and went out. The cash flow statement does the same for a company, in three parts:
- Operations: cash from running the business.
- Investing: cash spent on or received from machines, buildings and investments.
- Financing: cash from loans, new shares, and paid out as dividends.
Profit is not cash. Example: 17 profit on paper, but only 6 actually came in, and 2 was left after buying machines.
Free cash flow is cash from operations minus the money spent on machines and expansion (called capex). It is what the business keeps after paying for its own growth. Here: 6 − 4 = 2.
Common trap. One good year of operating cash can come from simply delaying supplier payments. Look at 3 to 5 years, not one.
4. How the three fit together
The three are not separate. Profit stays in the business and adds to equity, unless it is paid out as dividends. Cash flow explains why the cash in the bank went up or down. In short: closing cash = opening cash + the year’s net cash flow.
Profit adds to what is yours. Cash flow explains why the cash in the bank went up or down.
When the three do not agree (big profit, but cash did not grow), that is a question to ask, not a reason to panic.
5. Putting it together: a five-minute check
Go back to the two shops. Both report a profit of ₹10 lakh.
| Shop A | Shop B | |
|---|---|---|
| Profit | 10 | 10 |
| Cash from operations | 9 | 1 |
| Customers owe (receivables) | 3 | 12 |
Shop A turns almost all its profit into cash. Shop B has profit on paper but little cash, and customers owe it a lot. Shop B needs questions. Use these five checks on any company:
- Over 3 years, is cash from operations close to net profit, or far below?
- Are receivables growing faster than sales?
- How much of net profit is side income?
- Are loans rising while cash is not?
- Any one-time items in the profit ladder?
A red flag is a question to research, not a verdict. Takeaway: profit tells the story, cash flow checks it.
Try it live
Pick one large company you know and run the five-minute check on its latest annual results.
Practice lab
Do these on the real site. Tick each one when done. 0 of 3 done
Disclaimer: WealthyTrees is for education only. Nothing here is investment advice or a recommendation to buy, sell or hold any share or product. Numbers and examples are made up. WealthyTrees is not a SEBI-registered investment advisor. Please speak to a SEBI-registered advisor before you invest.