How to read a company's financial statements

Offer documents include three to four years of 'restated' financial statements. You don't need to be an accountant to read the important parts. Focus on four things.

1. Revenue: how much the company sells

Revenue from operations is the money earned from selling products or services. Look at the trend: is it growing steadily, jumping around, or shrinking?

2. Profit after tax (PAT): what's left for shareholders

PAT is revenue minus all costs, interest and taxes. Divide it by revenue to get the profit margin. A business with 15% margins keeps ₹15 of every ₹100 it sells.

3. Operating cash flow: is profit turning into cash?

A company can report profit while customers haven't actually paid yet. Operating cash flow shows real cash from operations. If profit is positive but operating cash flow is repeatedly negative, ask why.

4. Borrowings: how much is funded by debt

Compare borrowings with net worth (shareholders' funds). The ratio is called debt-to-equity. Higher debt means higher interest costs and more risk when business slows.