Chapter 6 of 12 · 16 min

Understanding company financials

Revenue, profit, balance sheet, cash flow — annual reports without fear.

Every listed company must publish its accounts — quarterly summaries and a detailed annual report. These documents are where truth lives (and where Gennoor Invest's screening engine gets its evidence). You don't need an accounting degree; you need to know where to look and what smells right.

P&L“How did the year go?”Balance Sheet“What do we own & owe?”Cash Flow“Did real money move?”Profit is an opinion — cash is a fact. Read all three together.
Three documents, three questions. Profit is an opinion; cash is a fact; the balance sheet is the X-ray.

The three statements, as three questions

  • Profit & Loss (P&L): "How did the year go?" Revenue (sales) at the top, expenses in the middle, net profit at the bottom.
  • Balance Sheet: "What does it own and owe right now?" Assets on one side; liabilities (including debt) and shareholders' equity on the other.
  • Cash Flow Statement: "Did real money actually move?" Profit is an accountant's opinion; cash is a fact. Healthy companies generate strong operating cash flow year after year.

Five things to check in any company

  1. Is revenue growing? Look at 5 years, not one. Steady 10–15% growth beats one spectacular year.
  2. Is profit growing with it? Revenue up but profit flat = costs are eating the growth.
  3. Is debt under control? Find "borrowings" in the balance sheet. Compare to equity and to last year.
  4. Is operating cash flow positive and near profit? Big profits with weak cash flow is a classic red flag.
  5. What does management say vs. do? Read the chairman's letter from 2–3 years ago. Did the promises happen?

☪️ Where the Shariah screen reads

The same annual report contains everything a Shariah screen needs: segment revenue (is any income from prohibited activities?), other income (how much is interest?), and borrowings (how large is interest-bearing debt?). This is exactly what Gennoor Invest's pipeline extracts — and every verdict on this site cites the page it came from, so you can open the report and verify with your own eyes.

Red flags anyone can spot

  • Debt growing much faster than revenue.
  • Profit rising while cash flow shrinks for multiple years.
  • "Other income" quietly becoming a big share of profit — the company earns more from its treasury than its business.
  • Frequent auditor resignations or changes.
  • Promoters pledging large portions of their own shares as loan collateral.

🛠 Build the skill — 30 minutes

  1. Download one annual report PDF of a compliant company (every company's website → Investors section).
  2. Find: total revenue, net profit, total borrowings, and operating cash flow. Write them down.
  3. Find "other income" and see how much of it is interest — you have just done a manual purification check.
  4. Compare your debt figure with what the Gennoor Invest stock page shows. They should agree — that's the evidence trail.

🎛 Try it: Spot the red flag

Six companies, real-world patterns. Read the numbers like an analyst — would you trust the accounts?

1. Steady FMCG company

  • ▸Revenue up ~12% every year for 5 years
  • ▸Profit up ~13%/yr; operating cash flow ≈ profit each year
  • ▸Debt negligible; same auditor for 12 years

2. High-growth distributor

  • ▸Profit up 25%/yr for 3 years straight
  • ▸Operating cash flow FELL each of those years
  • ▸Receivables growing 40%/yr — far faster than sales

3. Manufacturer with a great year

  • ▸Profit jumped 45% this year
  • ▸Footnote: "exceptional item — sale of land, ₹420 cr"
  • ▸Profit total ₹600 cr; core margins actually flat

4. Mid-cap factory company

  • ▸"Other income" is ₹310 cr of its ₹520 cr profit
  • ▸Most of it is interest on deposits and bonds
  • ▸Core manufacturing margins shrinking

5. Infrastructure player on a winning streak

  • ▸Order book at record highs, revenue up 10%/yr
  • ▸Debt up from ₹2,000 cr to ₹6,500 cr in 2 years
  • ▸Promoters have pledged 58% of their shares

6. IT services firm, unglamorous results

  • ▸Revenue up only 8% this year (slowdown)
  • ▸Cash flow strong, ₹18,000 cr net cash, zero debt
  • ▸ROE 28%, dividend maintained, buyback announced

📌 Remember

  • P&L = the year's story; balance sheet = today's position; cash flow = the truth serum.
  • Five checks — revenue, profit, debt, cash, management honesty — filter out most bad companies.
  • The annual report is also the source document for halal screening.
  • Never outsource trust: verify a verdict against the report when it matters.

✅ Check yourself

5 quick questions — answer honestly, learn instantly.

0/5 answered

USE CASE1. Profit has grown 25% yearly for 3 years, but operating cash flow keeps shrinking. The smart reading is…

2. Which statement answers "Could this company repay its debts if business froze today?"

USE CASE3. "Other income" has quietly become 35% of a manufacturer's profit. As a halal investor you check…

4. Promoters have pledged 60% of their own shares as loan collateral. This matters because…

5. The fastest honest way to judge management's credibility is…