Understanding Financial Statements-Equity and Share Capital
We have already discussed the basics of How to study financial statements. Now let’s move on to understand the topic “How to analyze each and every line item of a Balance sheet before investing.”
Share Capital or Equity
Share capital is the money invested in business by promoters and share holders. Movement in share capital or share holding pattern provides interest level of promoters in business of company. Increase in Share capital indicates that company has freshly issued shares to increase the operation level or acquire fixed assets to run the business.
Details of fresh shares issued and amount collected can be scrutinized by referring to related note number.
Investors should analyze movement in share holding pattern to arrive at conclusion whether promoters are offloading their shares. Offloading of shares by promoters can be a sign to estimate the future business prospective of company. One should not conclude merely on looking at the share pattern, promoters can sale shares even to comply with SEBI guidelines.
Investors should cross verify the movement in share capital with Cash flow statement. Cash flow statement is a better document to explain the utilization of money collected.
In next post we will analze the other line items in Balance Sheet.
Can you throgh some light on how to invest in a company (limited) which is not listed in the SEBI.
You can buy the shares by contacting existing share holders. Some transfer formalities included. Whether you buy from exisitng share holder or issue fresh equity, share register has to be updated.
I AM KEEN TO KNOW HOW TO STUDY A LIMITED COMPANY FINANCIALS WHICH ARE NOT LISTED
Whether company is registered or not does not make a difference. Financials are prepared based on the predefinied rules.
All ocmpany accounts will have same information. I am posting how to study different parts of financial statements alon with understanding financial statements as whole.
Please wait for further posts, its taking some time on research and presentation of information.
Till now we have understood framework and presentation of financial statements (Balance sheet and P/l in previous post) and what information are available in notes related to Equities.
For other items will be updating soon.
Please consider are listed or not instead of registered or not in last post.