Reading Indian financial statements
In this chapter: Three statements, in Indian-GAAP / Ind-AS lens · Quality of earnings — the practitioner's checklist
The three financial statements — income statement, balance sheet, cash flow — tell different aspects of a company's story. Income statement: profitability over a period. Balance sheet: financial position at a point. Cash flow: actual cash movement. Reading them together reveals what one alone hides: a company can show profits without cash, or cash without profits.
Indian-GAAP transitioned to Ind-AS (largely IFRS-aligned) for listed companies. Key Ind-AS adjustments: revenue recognition (Ind-AS 115), leases (Ind-AS 116 brings operating leases on balance sheet), financial instruments (fair-value through P&L for some). Quality-of-earnings checklist: cash conversion (operating cash flow vs reported PAT — gap is suspicious), receivables growth vs revenue (receivables outpacing revenue suggests channel-stuffing), inventory growth (rising inventory days), related-party transactions (red flag if material), capitalised expenses (lowering reported costs to inflate profits), tax-rate normality (very low or very high effective tax rates need investigation).
A practitioner insight: the "Beneish M-Score" and "Altman Z-Score" are quantitative screens for earnings manipulation and bankruptcy risk respectively. Every analyst should run them on every name in coverage. Beyond the math, read the auditor's report (qualifications, going concern flags), the management discussion (changes in tone year-over-year), and notes to accounts (where the real disclosures hide). Indian companies have specific governance angles worth checking — promoter pledges, related-party loans, OFS (offer-for-sale) timing.