NSE BSE Financial Analysis

COMPLETE GUIDE 2026 How to Analyse a Balance Sheet 01 Introduction — Why the Balance Sheet Is the Mirror of a Business A balance sheet — formally known as the ‘Statement of Financial Position’ — is one of the three core financial statements (along with the Profit & Loss Account and the Cash Flow Statement) that every business is required to prepare. While the P&L tells you whether a company made money in a given period, and the cash flow statement tracks actual cash movements, the balance sheet is the single most comprehensive snapshot of a company’s financial health at any given moment in time. Think of the balance sheet as a company’s medical report card. Just as a blood report reveals the internal health of a person, a balance sheet reveals what the company owns (assets), what it owes (liabilities), and what belongs to the owners (shareholders’ equity). Analysing a balance sheet is a skill that separates informed investors, savvy bankers, and sharp CFOs from those who make financial decisions in the dark. In India, public companies listed on the BSE or NSE are required to publish audited balance sheets every quarter and annually, as per SEBI regulations and the Companies Act, 2013. Private companies must file with the Registrar of Companies (ROC) annually. The balance sheet follows the format prescribed under Schedule III of the Companies Act, 2013, and is prepared as per Indian Accounting Standards (Ind AS) or Indian GAAP, depending on the size and listing status of the company. This guide is a complete, step-by-step tutorial on how to read, understand, and analyse a balance sheet — covering every component, every key ratio, every red flag, and real-world Indian examples using Indian Rupees (₹). Whether you are an investor screening stocks on NSE, a business owner trying to understand your financials, or a finance student preparing for CA or CFA exams, this guide will give you everything you need. 02 The Structure of a Balance Sheet — The Accounting Equation Every balance sheet is built on one fundamental equation that has governed accounting for over 500 years (since Luca Pacioli codified double-entry bookkeeping in 1494): The Golden Accounting Equation ASSETS  =  LIABILITIES  +  SHAREHOLDERS’ EQUITY   In other words: Everything a company OWNS = Everything it OWES to outsiders + Everything it OWES to owners   Example: If a company has ₹50 crore in assets and ₹30 crore in liabilities, shareholders’ equity = ₹20 crore This equation MUST always balance — hence the term ‘balance sheet’ In Indian financial statements (Schedule III format under Companies Act 2013), the balance sheet is presented in a vertical format with two sides: LEFT SIDE (Sources of Funds): Shareholders’ Funds + Non-Current Liabilities + Current Liabilities RIGHT SIDE (Application of Funds): Non-Current Assets + Current Assets Note: In older horizontal formats (pre-2013), assets were on the right and liabilities on the left. Modern Ind AS-compliant balance sheets use the vertical format exclusively. 03 Understanding Assets — What the Company Owns Assets represent all the economic resources owned or controlled by a company that are expected to generate future economic benefits. Under Schedule III (Companies Act 2013), assets are classified into two major categories: 3.1 Non-Current Assets (Long-Term Assets) These are assets that are NOT expected to be converted into cash or consumed within 12 months from the balance sheet date. They represent the long-term investment backbone of the business. 3.1.1 Property, Plant & Equipment (PP&E) / Fixed Assets Land & Buildings (factories, offices, warehouses) Plant & Machinery (manufacturing equipment) Computers, Vehicles, Furniture & Fixtures Capital Work-in-Progress (CWIP) — assets under construction, not yet ready for use Shown at COST less accumulated DEPRECIATION = Net Book Value (NBV) Example: A manufacturing company bought machinery for ₹10 crore in 2020; accumulated depreciation ₹3 crore → NBV = ₹7 crore 3.1.2 Intangible Assets Goodwill (premium paid during acquisitions — e.g., Tata acquiring Jaguar Land Rover) Brands and Trademarks (e.g., ‘Amul’ brand on GCMMF’s books) Patents, Copyrights, Software Licences Customer Relationships, Non-Compete Agreements Amortised over their useful life (e.g., software over 3–5 years) 3.1.3 Long-Term Investments / Financial Assets Equity shares held in subsidiary companies, associates, and JVs Long-term bonds, debentures, government securities Security deposits (refundable deposits paid to landlords, utilities) Loans given to related parties or employees (repayable > 12 months) 3.1.4 Deferred Tax Assets (DTA) DTAs arise when a company has paid more tax to the government than what is due based on its accounting profits. This excess can be recovered in future periods. Common causes include accelerated depreciation for tax purposes, provisions for bad debts not yet allowed by tax authorities, etc. 3.1.5 Other Non-Current Assets Capital advances (advances paid to suppliers for purchase of fixed assets) Prepaid expenses due after 12 months Non-current bank deposits (FDs maturing after 12 months) 3.2 Current Assets (Short-Term Assets) These are assets expected to be converted into cash, sold, or consumed within 12 months. They represent the operational liquidity of the business. Current Asset Description Indian Example Inventories Raw materials, work-in-progress, finished goods, stores & spares A textile company: Raw cotton ₹5 Cr, WIP ₹2 Cr, Finished fabric ₹8 Cr Trade Receivables Amounts due from customers (debtors) for goods/services already delivered IT company: Software services billed but unpaid: ₹50 Cr from TCS clients Cash & Cash Equivalents Cash in hand, bank balances, liquid FDs < 3 months, T-Bills Bank balance ₹10 Cr + Liquid mutual funds ₹5 Cr = ₹15 Cr Short-Term Investments Mutual funds, fixed deposits maturing within 12 months ₹20 Cr FD with SBI maturing in 6 months Loans & Advances (current) Employee advances, advance tax paid, GST input tax credit (ITC) GST ITC receivable: ₹3 Cr | Advance tax: ₹8 Cr Other Current Assets Prepaid expenses, interest accrued, export incentive receivables Prepaid insurance ₹25 Lakh | Interest accrued ₹80 Lakh 04 Understanding Liabilities — What the Company Owes Liabilities represent the financial obligations of a company — amounts it owes to external parties. They are the ‘claims’ of outsiders on