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How to Read Financial Statements – Part 1

Ever since I wrote posts on the importance of reading annual reports and how to read annual reports, I’ve received a lot of emails from readers on a post on analyzing financial statements.

In a classic case of procrastination, I did not write that post so far.

But my guilt has got the better of me, and the result is this video that will help you with the basics of financial statements and how you can study the inter-linkages between the three – P&L account, balance sheet, and cash flow statement.

Please pardon my handwriting! 🙂

If you can’t watch the video above, click here to watch.

Then let me know whether you found my explanation simple enough to understand the basic working of the financial statements. I’m not sure I could’ve made this any simpler. 🙂

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.


  1. Ramesh Bhanu says:

    Hi Vishal,

    Good video …Some suggestions from my side

    1. Please suggest a good text book & reference book for understanding financial statements. These books will help us in gaining more knowledge in more systematic way(kind of we learn a subject in college)

    2. Please try to cover a video/blog/e-book on common traps in reading Financial statements.(For example, I remember you covered how ROE is increased by taking Debt. So we should check DEBT also while checking ROE.) Everyone will get benefited if we know more mistakes generally we make while reading financial statements.

    3. Sometimes its very difficult to understand Financial Statements when you are a starter. Please suggest any good resource you come across where we can verify our interpretations of the financial statements.
    ( I tried to apply my knowledge (learned from you from blogs) on Geodesic Ltd. financial statements and found that the company is a good company when we apply checklist. But somehow I get a feeling that I am missing something. Something is not right about the company. Obviously I will not put my money in that company but If we have any resource (For e.g. Ratings by third party/ Research report etc) where we can go and see what exactly we are missing then that will be a good and practical learning lesson.



    • nice video.
      As i’m a starter ,It would be very helpful if u can post a video which analyses a company of ur choice eg: balmer& lawrie using its latest financial statements.

    • Dear Ramesh, thanks for your feedback.

      1. Read “Financial Statement Analysis” by Martin Fridson

      2. Thanks for your suggestion! Will try and write something on this. In the meanwhile, here is a post written by Anil, a tribesman, on financial shenanigans.

      You can also read “Financial Shenanigans” by Howard Schilit and “Quality of Earnings” by Thornton L. O’glove on this specific topic.

      3. It comes from reading and experience 🙂

      Hope this helps. Regards.

  2. Mrityunjay says:

    Thanks a lot….waiting for more

  3. R.K.Chandrashekar says:

    Dear Vishal
    You have made it so simple that a layman with minimum common sense should be able to understand Fin statements. As we all go along on the investment journey, it would be helpful in your subsequent video’s to help us to understand and use important financial ratios, like ROE, ROA, Price to book, etc to evaluate co’s.

  4. Sachin Ghugare says:

    Dear Vishal,
    It was great to understand the important basics of how to read the financial statements, especially the most important cash flow. Generally Interest is paid on post tax income, please let me know if it is wrong.

  5. Taught in the most simple language to understand. Thanks

  6. Vishal why do your posts where you talk about your life have 50+ comments while the most important post when it comes to value investing i.e. reading the financial statements have only 7 comments?

  7. L S Chauhan says:

    Dear Vishal
    Where can one find out ‘working capital’ of a company in the financial statement?

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