Basics of Finance & Stock Market

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1. Profit & Loss - Statement is made Once in a year (Valid only for one FY). It includes Income and Expenditure for particular FY.  

2. Balance sheet - Includes Assets and Liabilities as on that particular FY from date of establishment of organization.

3. Revenue Expenditure - Any Expenditure the benefits of which gets exhausted before the balance sheet is date is Revenue expenditure. Example: Labour Salary, Raw material, Utility bills etc. (Recurring in nature and cannot be counted in Assets)

4. Capital Expenditure - Any Expenditure the benefits of which goes beyond the balance sheet is date is Capital expenditure.

5. Standalone Balance sheet- Organization's Balance sheets includes HO + Branches (India + Abroad) put together is standalone balance sheet

6. Consolidated Balance sheet - Consolidated balance sheets includes HO + Subsidary (> 50%) + Associations (>20% & <50%) + JV , Assets and liabilities statement

7. Bulk Deal - Deal where multiple no. of shares (usually in Lacs) are bought and sold within a second or seconds. Its is important to know who is buyer and who is seller. 

8. In Financial report >> Under Auditor's report - It is important to check : 
 a. Opinion paragraph with phrase having True & Fair view or similar which represents Report is reliable. 
 b. Key Audit matter clause - It discloses important findings of the auditor communicated to promoters now disclosing to shareholders
 c. Auditor resigns from the company. (Red flag)

9. Understanding balance sheet terms :

 1.  EQUITY AND LIABILITIES:  

A. Shareholder's Funds:  - Promotors fund OR Promoters money with which business is started.


   a. Share Capital
   b. Reserves and Surplus - Profits generated from the business which are retained with the company are Reserves and Surplus. Higher the Reserves and Surplus the better it is. (Alias- OTHER EQUITY as per INDAS). Analyze 5 years trend of Reserves and Surplus if it is continuously increasing it is a good sign similarly (e.g Infosys) if it is continuously decreasing then it is bad sign (e.g Jet Airways).
     Below points needs to be checked mandatorily in Balance sheet. These should account for maximum amount of Reserves and Surplus in total

  • General Reserves
  • Retained Earnings
  • Securities premium      
   Note:  Equity Share : Reserves - Lower capital and higher reserves is a good sign. 


B. Non- Current Liabilities: Money which is payable after 1 year is known as non- current liabilities.

C. Current Liabilities: Money which is payable within 1 year is known as current liabilities. 


2. Assets: 

A. Non - Current Assets : An asset which can be converted into cash or cash equivalent after 1 year. 

B. Current Assets : An asset which can be converted into cash or cash equivalent within 1 year. 

a. Current investments: Example: 6 months FD, Gold or Shares (intentions to sell within 1 year).
b. Inventories: Items in which an businessmen deals .i.e they are bought with an intention to sell. Example: A garment shopkeeper buys T shirts with an intention to sell.
c. Trade receivable: A customer from whom the money is receivable. Trade receivable amount is increased only when there is a credit sale. 
d. Cash and Cash Equivalent : Example- Savings bank account balance, Wallets balance etc.
e. Short terms loans and advances: Example: Loan given to an employee. 
f. ESOP: An option given to employees of the company to buy shares at a discount of market price.


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