Stock Market Basics · Lesson 9 of 14 · Updated October 2026 · 7 min read
Quarterly results tell you how much a company earned. The balance sheet tells you what it owns and owes. The cash flow statement tells you whether the profit actually turned into cash. Together they show whether a business is strong or fragile.
In short: Look for manageable debt, growing shareholders’ equity, and cash from operations that roughly matches profit over time.
The balance sheet
It’s a snapshot on one date, and it always balances:
Assets = Liabilities + Shareholders’ equity
| Section | What it includes | Simple meaning |
|---|---|---|
| Assets | Factories, equipment, cash, inventory, money owed by customers | What the company owns |
| Liabilities | Loans, money owed to suppliers, other dues | What it owes others |
| Shareholders’ equity | Money owners put in plus profits kept in the business | What belongs to shareholders |
Debt: the number to watch
Debt isn’t bad in itself, but too much makes a company fragile when sales slow. A simple check is the debt-to-equity ratio.
Example: A company has ₹500 crore of borrowings and ₹1,000 crore of shareholders’ equity. Debt-to-equity is 0.5. Many investors are comfortable below 1 for most non-financial businesses. Banks and lenders work differently and are judged on other measures.
The cash flow statement
It shows cash coming in and going out over a period, in three parts:
- Operating cash flow: cash from the actual business. This should be positive and grow over time.
- Investing cash flow: spending on factories and equipment, or buying other businesses. Usually negative for a growing company.
- Financing cash flow: borrowing, repaying loans, issuing shares, paying dividends.
Profit vs cash
A company can report a profit while customers haven’t paid yet. If profit keeps rising but operating cash flow stays weak for years, ask why. Over several years, cash from operations should be close to net profit.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
| Net profit | ₹100 crore | ₹130 crore | ₹160 crore |
| Cash from operations | ₹95 crore | ₹60 crore | ₹40 crore |
In this example profit is growing, but cash is shrinking. That needs an explanation before you invest.
Common questions
Where do I find these statements?
In the annual report, and half-yearly in the results filings on the exchange website and the company’s investor page.
What’s a good first habit?
For every company you own, write down three numbers each year: debt, shareholders’ equity and cash from operations.
Next lesson: P/E Ratio, Market Cap and Valuation Basics → · See all 14 stock market lessons
Education, not investment advice. Figures and rules as of October 2026; check the latest before you act.