Posted by: sanjayshetty | November 28, 2007

Understanding the numbers

For a tech geek like me, numbers have been a typical challenge. Understanding things such as “Profit doesn’t represent cash in the bank” or even more weird stuff like excess cash can be a problem, were things which were alien to me. For instance understanding that a company which can easily raise prices is extremely valuable, or that Operating income is a far better indicator of a company’s profitability and ultimately knowing that Cash is king, when you’re analyzing any company. Seems obvious when one reads about it, however reading a company’s financial statement can be like solving a jigsaw puzzle.

Getting a good grasp on the various numbers provided by a company via the Balance sheet, cash flow and Income Statement(Profit and Loss) is a challenge. I’ve been scouting around for a good article/site which will explain all of it at one go. However in the end landed up writing an article about the same. I’ve posted the article, as it’s quite longish, on Value Investing News (
). Understanding what each of these 3 statements + the footnotes present is one thing, analyzing them is another ball game altogether. Hopefully the article will provide a good starting point. There is also a free book available online which I’ve referred to out there. I hope to write many more longish articles, however, I’d be posting them on Value Investing News, whereas my blog out here, would have smaller length articles at least for now.

Hopefully the article will help in increasing your understanding of companies.



  1. Sanjay,

    A very nice article in understanding the statements to analyze the value of a company.

    I have couple of trivial questions. They are not related to the article. But are related to general investment. Thought you might have an answer.

    Looks like you are an Indian and investing in US markets. I am also an Indian. It would be great if you can tell me avenues to invest in US markets from India.

    Also can a NRI invest in India? If so what are the avenues.

    Thanks in Advance.

  2. You could open an account with ICICIDirect which allows you to invest abroad, alternatively you can open an account with Etrade or Zecco or any other broking house internationall. Transfer money to the account via any local bank thru which you operate and start investing. The RBI now allows you to do that without any issues.

    Regarding NRI’s investing in India, I know they can, however, I’m not an expert on that. Speak to a local Indian accountant/accounting firm, and he/they should be able to guide you. You could also directly invest in ADR’s listed on American markets which is another option.

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