Free Stock Market Course

Chapters in the Course:

1. Certified Open FREE Stock Market Course – Certified Investment Analyst – Chapter 1:
2. Chapter2: What are Stocks? And what is the Nifty or the SENSEX?
3. Chapter 3: Know How to do Stock Analysis or Fundamental Analysis!
4. Chapter 4: How to Do Financial Analysis: Learn to read the Income Statement.
5. Chapter 5: A Chat about the Balance Sheet. How to Read the Balance Sheet for Stock Fundamental Analysis:
6. We shall be putting up further Chapters and give You a complete Course very Soon! SO Stay Tuned!

FREE Stock Market Course – Chapter 1:

How can You Make Best Use This Course?

Welcome to this comprehensive FREE Course on Stock Markets. I am a SEBI Registered Stock Market Expert (& a PGDM in Finance + B. Tech) with more than 7 years of market experience. I invite you and urge You to go through all the chapters , gain practical knowledge and become an Intelligent Investor! If you complete all Chapters You will gain comprehensive knowledge about how to Analyze Stocks and take investment decisions. You can complete the course at Your own pace , however it is best to have a regular schedule for better absorption of the course material. Follow each chapter and do the tasks given to You at the End of Each Chapter. Tasks will be very simple but as we proceed will become a bit more challenging. That is the ONLY way You will be able to learn analyzing and investing, there is no other short cut to it! You have to not only read the Chapters but carry out the tasks given to You. Post completion of all Chapters You may Take the Test for Certified Investment Analyst. Upon Successfully completing the exam You will be given this Certificate of Completion to show for what You have learnt! You need NO EXPEERIENCE to take this course. All the best and I will be  waiting for Your Course Completion Eagerly!

Chapter1: What is Stock Market?

 Chapters which are written in a way that no matter what your background is you will be able to understand it fully! I highly recommend you to read all the chapters.

1.1: What is a Stock Exchange?

I believe all of us have been to the Amazon Website or you City Mall or Mart, What’s so special about these places? I bet you have guessed it, which means you already know the basic concept of Stock Markets! Amazon is a website where all kinds of businesses can enlist their products for sale. Similarly here, Stock Exchanges are a “Mall” or “Place” where all kinds of businesses can apply for enlisting their “equity” or “stocks”! In Indian Stock Markets there are two places where companies can get their “stocks” listed – NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). The benefits are obviously similar – like amazon makes it easier for you to shop anything and everything from one place, similarly stock exchanges have made is easy for you to “buy” and “sell” the “stocks” all the listed businesses at the same place. Imagine how it would have been if you had to go to HDFC website to buy HDFC stock and then to Nestle website to buy Nestle Stock and then to some other company website to buy their stock. Or worse – You had to go their office to buy them! And you didn’t know where to sell them either! That would have been a disaster! Isn’t it? So that function of give the public accessibility to the “stocks” or “equity” of various “listed” businesses is carried out by the Stock Exchanges.

Conclusion: Stock Exchanges are the Place where buying and selling of “stocks” of various businesses happen. India has two Stock Exchanges – BSE and NSE.

1.2: Now what is the Stock Market?

We already know what a stock exchange is! Now what is “Stock Market” word referring to? Is there a difference?

Stock market is a holistic term to refer to all the elements that are related to stocks – the “buyers”, “sellers”, “exchanges”, “custodians”, “intermediaries” etc. we will learn about them in the due course not in a formal manner but as the system requires it. Rather than trying to mug up the apparently complex terms it is best we read about them when their mention arises in the proper context! We will discuss Stock Market NSE BSE Nifty Sensex etc. in more details in the coming chapters! Stay tuned!

Go to Next Chapter: What is a Stock or Share? What is SENSEX and NIFTY?

Work for You to Do: We spoke about NSE and BSE being the stock exchange of India. Find out the stock exchanges for other countries now, such as USA, Japan, England, Australia, Brazil, South Korea! What are they called?  (we will be coming up with these chapters every alternate day so stay tuned. Our Quantum Stock Portfolio Solutions are backed by our Advanced Investeye33 Analytics (AIA) which predicted the 2020 correction, 2021 October market and 2022 market volatility well in advance. This AIA when backtested can predict Y2008 and Y2000 corrections and bottoms well in advance.)

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Chapter2: What are Stocks? And what is the Nifty or the SENSEX?

Welcome to the stock market free course.

2.1: What are Stocks or Shares? What is Equity & Debt?

Answer to this will be crystal clear if we first understand what is Debt and What is Equity?

Suppose You and Your friends start a business of making Games based on Ancient Indian Super-heroes (The ones which we find in Puranas, Ramayanas, Mahabharatas and Vedas!) You and Your friends decide to invest Rs:  1 Million in it. But you need another 2 Million to kick off with your first comprehensive Game Prototype. So you decide to Borrow that Money from a Bank. Now Your Business “Capital Structure” Looks Like this:

Your (and you friends’) own money (called Equity) = Rs: 1 Million

Borrowed Money (called Debt) = Rs: 2 Million

Now you prepared a document where you made smaller units of your Equity say You made 1 Million units of 1 Re each – these will be called Stock or Shares. We will keep it simple for now because finance is simple it is just made to look hard by some. Gradually we will look into advanced and more sophisticated explanations of this – but the basic concept will remain exactly the same.

So you had Equity, You dissected the Equity into small small parts called stocks or shares. Now You can buy or sell them to increase or reduce your ownership and share in the company at will. So This is what stocks are, and their  main purpose – To make Equity Fungible and Exchangeable between people/investors.

2.2: What is the NIFTY or SENSEX?

We already learnt what is a Stock exchange in the previous chapter. Now we talk about the Stock Index – SENSEX, NIFTY. are Stock Indices. Now what are they actually? In a Stock Exchange say NSE, there are thousands of listed companies – that is , in the Premium Showroom or Ecommerce Portal called the Stock Exchange there are many kinds of sellable and purchasable shares – Britannia is there, and also a Satyam is there, Eicher Motors is there and also a Hind Motor is there. Now how do you decide that which one is the better investment? For investors who do not have the time or the tools to analyze each business and then decide for themselves, SEBI (Stock Exchange Board of India) has created easier ways to invest in selected stocks. These selected stocks in a way are a representative of the whole market. Their stock valuations are added up in certain proportions and a value comes out which is taken as the value of the Index.

SENSEX: The SENSEX was formed in 1986 as an Index comprising of the 30 largest and most financially sound companies of the Bombay Stock Exchange (BSE). There are certain metrics which are used to derive that conclusion. Simply speaking – The freely traded share proportion of these companies compared to the entire market is considered and accordingly an equivalent weightage is added to the value of this Index. This is the oldest Index of India and represents in many ways the market sentiments and its cycles over the years.

NIFTY: SENSEX is an Index which was based out of stocks  listed in BSE while NIFTY was formed in 1996 based on Stocks listed in NSE. No need to get confused over this difference. As you know at any given moment prices of Stocks on either exchanges are almost similar to the extent that no ambiguity forms or no advantage can be taken out of that. Now, coming back to the NIFTY, or (NSE + FIFTY), is a collection of 50 largest and sound and highly traded companies in the NSE stock universe of 1600 stocks. These are also selected based on certain criteria such as liquidity, free-floating (freely available for trade) market capitalization of 1.5 times than the smallest constituent of the index. Nifty is also called NIFTY 50 and there are many indices associated with it like NIFTY 500, Nifty NEXT 50, Nifty Banking etc.

Check Previous Chapter – What is Stock Exchange and What is Stock Market?

Check Next Chapter – Starting Fundamental analysis – What all do you need to learn and from where?

Things to do for You: Find out the different indices for different countries. Hint: NASDAQ, DOW JONES, NIKKEI, KOSPI, CAC 40. Find out which stocks are included in which index. Keep updated with this course as every alternate day we will be coming up with new chapters that will cover all the basics of investing.

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Chapter 3: Know How to do Stock Analysis or Fundamental Analysis!

3.1: How do I analyze stocks and make profit through right kind of investing?

This course is created to deal successfully with this very question! And in this chapter we will discover a few things that will create a quantum shift in our understanding of stock analysis. For many of you this may be your first time you here certain terms being used .  But let me tell you that this is absolutely simple but  very powerful stuff so read on! But first things first – All this while we have been using the words like Stock market, Stocks, Shares, Equity etc. Now before we begin the journey we have to set our perspective in the right direction or else we are bound to go far astray. When we say we are buying a Stock actually what are we buying? We are buying a part of the ownership in the company, no matter how big or small it is. Think about Yourself – when you go out to buy a company what would you look for in it? Obviously  You will NOT buy a company that is not able to make profits or sell its products! You will buy the ones that are selling great solutions to their buyers at high profits! And moreover if the company is worth 100 bucks you obviously would not pay 1000 bucks or 10000 bucks for it even if it is good! You would rather pay 75 or 50 or 25 – the better the price the better the future gains! First we must be clear what our goal is – Finding Excellent Business at the Best Prices. Now we are ready to begin.

Fundamental analysis of a business or Stock has multiple layers – Subjective and Objective. The Subjective Part talks about how the industry is doing as whole, how the business and its products are preferred by its buyers, how good the Management and its Team are, What is the current position and future strategy of the business etc. While the Objective part is – what are its revenue, profits and debt position, what is its market share in the current times and what is the trend, What are its Cash Flows, How good is the Balance Sheet etc. We learn the best and easiest ways to master them as we go along. Now let us discuss more about the Subjective Part:

3.2: The Subjective part of Fundamental Stock Analysis – Porters Five Forces , Entry Barrier & Management:

Porter’s Five Force Model – The First Step to start subjective stock Analysis:

This can also be called the Qualitative Analysis of the business. The best way to do it is to look at a company and apply the Porter’s Five Force Model to it. Let us look into this:

A Business is typically dealing with five forces at all times which decides majority of its performance metrics. These are:

1. Power of Customers: If the customers have too many businesses selling essential/favorite  product then the margins may go down drastically. Example –Real Estate, textile, etc. These businesses struggle to find profit margins despite their products being of essential nature reason being there are too many sellers. While on the other hand if there are only one or two companies selling our essential or favorite product then the margins go up dramatically. Example – Cadbury, Nestle Baby Milk Product, Maggy, Kwality Walls, Bourbon, Coca Cola, Tata Salt, iPhone, Google.

• Substitute Products: Every industry has the possibility of being disrupted. While investing we need to keep in mind two things – Is there any disruption currently happening? Is there any possibility of a future disruption? If so When and How fast? Currently there is a legal battle going on between the two brothers of “Hero” Two Wheeler Brand. The problem is going on because there is a visible disruption in the auto industry with the future being seen as that for EV (Electric Vehicles.) Now the brother who is owning the Hero IC Engine Brand (Largest 2 Wheeler maker) cannot use the name “Hero” for the EV vertical as the other brother allegedly is entitled to it. Naturally there is a big problem as none of them want to give away the “Hero” Brand name for Electric Vehicle! Several years back,  When Digital Cameras had not yet arrived, Kodak was ruling the markets. But subsequent rise in digital Camera, Mobiles with Camera etc. Kodak could not keep up nor could it innovate or restructure to ride with the change. Result we all know.
• Existing Competition: It is not only the number of competitors but the nature of competition between the constituents that decide the performance of a business. Ashok Leyland and Tata Motors are both in Commercial Vehicle segment. It is a duopoly of sorts with Tata Motors dominating. But they always struggle for margin. It is not only about the number of competitors; it is also about the nature of the competition. IF it is all about price wars then none of the competitors make profits. Zomato and Swiggy both account for Hundreds of Millions in Losses every year . Reason? they are trying to capture markets at the cost of cash draining. Result ? none of them make profits. While on the other hand TCS, Infosys, HCL, Tech Mahindra, Mind Tree and many other players in IT as well as multitude of sound players in Pharma enjoy healthy profits despite there being a lot of competition. Lot of factors decide this nature of competition but our main objective is to first ascertain whether the competition is turning into a full blown price war. And if it is then should we buy? Depends on our conviction of the future of that business.
• New Entrant Company:  A new entrant company may come up with a more cost effective or a better quality product in the same industry thereby changing the performance dynamics forever. Tesla came into the US EV market where there were Big Names like GM (General Motors) already gunning for it. But Tesla, by the virtue of its innovative capabilities and a strong dedicated team of Engineers and Marketing Capabilities, (Musk himself being a Grand Master at both!) has clearly stood out. This was done not by the virtue of cheap pricing, but through inventive engineering, teamwork, premium quality & marketing. They have dominated the market to such an extent that their components are today being used by GM too in their cars. We should always look out for threat coming from new entrants when analyzing a business – even that threat can itself be an investment opportunity!
• Power of Suppliers: The more power of pricing a supplier or distributor has the less is the margin of the business which needs that supply/distribution. Asian Paints owner MR. Champaklal had bought a Super Computer in 1970 even before ISRO had one. By the use of that Super Computer and Data Analytics, Asian Paints has made its nationwide distribution so prudent and centralized that today it stands out as one of the most amazing corporate success stories in India. It is not the quality of paint or lack of competition that drove its success, it was primarily control of distribution and data driven approach. Hero Motors has a negative cash conversion cycle so does Amazon. This means both of them have control margin sharing and /or control over timeline of payments to their suppliers/distributors. On the other hand Coal India is a Monopoly supplier of coal to the thermal power generation companies in India (like CESC). It is one of the most inefficient coal producing companies in the world which spends half of its revenue (which is in trillion) to pay its employees & always falls short of its target. It has a highly unionized work culture with pathetic efficiency, but still it commands huge profit margins while the common people are taught to blame the private thermal power generators for the inflation in electricity bills. This is the advantage of being a monopoly supplier and disadvantage of being a business who needs to deal with that. But these are two extreme cases of efficiency and inefficiency. And we need to be aware of this factor.

Many of the above factors can only be understood after we do the right amount of Performance Analysis or Financial Analysis. That we will begin doing right from the the next Chapter so no need to worry. Only those companies which stand out in the Porters Five Force Model are best suited for further investigation and a possible investment. The company which is able to pass the Porters Five force Test naturally is a Strong business. But how and Why? The answer lies in One word – Entry Barrier.

Entry Barrier:

Apple has an Entry Barrier of quality, innovation, convenience & client loyalty. In mid 90’s Amazon had an entry barrier of Product Seletion to begin with which helped it scale up, Coca Cola has an entry barrier of unique flavor which cannot be copied. Asian Paints has an entry barrier of Brand, Scale, Distribution Speed and Market Data & Intelligence. What is the entry barrier of the company which you just found out passes the Porter’s Five Force Test? Passing Porters Five Force Model is just the upper layer, the symptom. The real diagnosis will be finding out WHY and HOW it passes the test. Businesses tend to have the same entry barrier to begin with – an innovation. It can be a more cost efficient product/service – Indigo Airlines, a better quality product – Tesla, a better ingredient of making some other product – GMM Pfaudler, constant innovative ability – Amazon, Google, Apple, Better technology – Google . Rarely some businesses even have scale as their entry barrier at the starting point only – Jio Platforms can be such an example (Jio also has other entry barriers such as  5G readiness, Optical Fiber end-to-end, lower cost to the customer, but these are mainly byproducts of the nationwide scale in which Jio has structured its business upon. Airtel or Vodafone could not imagine spending 2 Trillion Rupees for a new Optical Fiber Network Nationwide. That made the difference!) HDFC has an Entry Barrier of Lower average cost of borrowing which makes it stand out from the others. We have to find businesses with Strong entry barriers for ensuring highest quality of investing.

Management:

An Amazon cannot be visualized without a Jeff Bezos, A Microsoft without Bill Gates is really unimaginable, a SpaceX without Elon Musk or an Asian Paints without Mr. Champaklal or an HDFC without Mr. Aditya Puri would not have been possible. Just heritage cannot give you equal business acumen – if you study the Reliance second generation saga you can realize that. Management and the Team of people working towards building the enterprise are at the core of any performance metric. The Munjal Family created a great bicycle production unit which compelled the Honda management to tie up with them in 1984. Without engineering and business acumen this would not have been possible. Similarly we have seen instances of Lehman Brothers – a Leader who flies private but his company goes bust, A Cox and Kings or a Satyam. Mr. Warren Buffett put it succinctly – “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without integrity, you really want them to be dumb and lazy.” How to find such great management? Well you look for Background and experience of the management, Performance history, Telecall Transcripts, Annual Reports, Governance and Fraud related Reports & related News, Investors complaints, SEBI records, Whistle Blower records. One thing you try find is consistency – if the management commit something they stock they achieve, if not they face it honestly and not mollycoddle it. You check the payouts they take in the annual report, the fees they pay to the auditors – both in proportion to the profits and cash flows. If you find blemishes which are significant you may better skip that hand!

Go to Next Chapter – Chapter 4 : Know How to conduct Financial Performance Analysis?

Go to Previous Chapter – Chapter2: What is a Stock or Share?

Actions to be taken – First Please Go through the next few chapters on Financial analysis. We will come back to this chapter again post the next chapters on financial Analysis are completed.  Here I tried to give an overview of the very vital core aspects of analyzing the quality of businesses. But you need to be able to do financial analysis better to get a deeper understanding of this chapter.

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Chapter 4: How to Do Financial Analysis: Learn to read the Income Statement.

4.1: Everything that You need to Know!

If you do not have a financial background, looking at a Balance Sheet or an Income Statement can get quite confusing. And if someone tells you that this is necessary to understand it in depth if you want to master stock analysis then with no guide around, it can get quite disheartening. But You need not worry. This course is here to take you through all that learning step-by-step and gain appreciable mastery over the topics of financial analysis, stock analysis, fundamental analysis. You will learn about all the topics that are discussed in Finance News and reports – such as Market Capital, PE Ratio, Reserves, Order Book, NPA, ROE, ROCE, PB Ratio, PEG Ratio, Cash Conversion Cycle and much more so keep completing this course at your own pace and please maintain regularity. Also from here on carefully follow the Tasks given for You below. Because the serious work begins from here!

For Financial Analysis, there are 4 things that you need read & understand in that order. These are:

1. Income Statement
2. Balance Sheet
3. Different Ratios
4. Cash Flow Statement

The obvious simple way to become absolutely comfortable with these is to read them every day. Where and How I will tell you exactly in the following sections.

4.2: The Income Statement:

Go to any website that you are comfortable with. I would suggest screener.in because it does a great job of simplifying data access for every user. Log in for Free with your email (gmail, ymail etc.). Type in any Stock, say Infosys. You will see a Page with all stock details – Ratios, Charts, Profit & Loss Statement (or Income Statement), Balance Sheet, Cash Flow Statement, everything that you may need for a preliminary analysis. Scroll down and You will see an Income statement record like this:

Here what we have is a data from Mar’12 till Mar’21 which is great! Now let’s focus only on the Mar’21. As you can see above there are certain “items” listed in the “statement” in certain “order”. This is how Income statement or Profit and Loss Statements are written Down. The Items are:

Sales: This is the total “revenue” from “operations”. Why “operations” word is important here is  – say Infosys sells a Plot of land because it is thinking of lesser office spaces in the future and earns Rs:100 Crore from that. This will not be included in sales because selling land is not part of Infosys Operations. It is an “other income”. Only IT and Digital related incomes will come under sales.

Expenses: These are all Expenses before “Finance Costs” and “Depreciation” (we will tackle these terms soon. Read on!)

Operating Profit: This what is left from the “Sales” or “Revenue from Operations” after taking out the “Expenses”.

OPM: This is the Operating Profit Margin. For Infosys, Annual Sales of Rs:109000 Crore and Operating Profit of Rs: 29949 Crore (for Mar20 to Mar’21 period) means OPM or Operating Profit Margin is 27%.

The above four items reveal how well the core business of the company is doing or how good the solutions provided by the business are. A high Operating Margin, A Very high revenue, High growth in profit and revenues, High Operating Profit Margin – these all mean that the business has a great solution/product to offer and is doing well on the Sales front.

But what if the company has high borrowings? Or what if the company is selling off assets and actually trimming down its business? What if the Factory Equipments which are of very high cost have to be replaced soon? The remaining will give you a hint on these things.

Other Income or Exceptional Income: The other income denotes incomes other than main operations. Sale of Land or some other asset, sale of shares or equity, are all under this portion. If Infosys rents out an office owned by it that will come under other income. On the other hand if WeWork (a “Shared Workspace” Business) rents out its property to other companies then that will fall under sales or revenue from operations. This is because WeWork’s operations is giving out spaces to other businesses while Infosys is into IT & not renting spaces! Other Income can also turn out be negative if other expenses  become larger than the other income. This topic we will discuss again in the balance sheets segment. We should look at the quarterly statements and annual reports to find out the details of other income and exceptional income. Minute proportion of Other Income in comparison to the Sales is the preferred scenario of a healthy business.

Interest or Finance Costs: Company has to pay interest or EMI when it takes loans. The Loans are recorded in the balance sheet while the interest payments are recorded in the Income statement. Goes without saying that companies with low interest expenses are better off than those with very high interest liabilities.

Depreciation: Say Infosys bought a Server Unit for 1000 Crore Rupees this month. The hardware has a lifespan of 8 years. Now what the accountant in Infosys will do is instead of showing Rs1000 Crore as an expense in the coming annual Financial Report it will show 1000/8, that Rs:125 Crore as “Depreciation” for eight years every year starting from the coming filing. The logic behind this is – even though the expense may be made lump sum, the server continues to be useful for 8 whole years and for that long period we don’t need to pay for this. So instead of  showing a choppy Rs:1000 Crore in year 1 and then Rs:0 for next seven years it is more logical to “depreciate” the cost across its useful life. Same goes for an assembly unit of Tesla which has a life of 20 years. The cost will be uniformly “depreciated” over 20 years not in lump sum on the first year. Look at the depreciation and check the annual reports for remaining lifespan and total useful life of the equipments being used. It is part of the financial reports given in the annual reports of the companies.

Profit Before Tax: By Deducting, interest and depreciation from the Operating Profit and by adding (subtracting) other income (other expense) we get “Profit Before Tax”.

Tax: After this comes the “Tax” Part. Here you can see it is showing 27% Tax which means whatever the “Profit Before tax” comes out to be, 27% of that will have to be paid as tax. Taxes may vary from Sector to sector, business to business and from Time to time.

Net Profit or Profit After Tax or PAT:  This is the net amount that is realized as profit after ALL sorts of expenses are taken out from the Income. All the vital metrics such as “EPS” (Earnings per share), “PE Ratio”, “Return on Equity”, “Return on Capital”, etc. all of which we will learn soon in this course are derived from this figure. The future performance and survival of the company has a significant correlation with having a healthy PAT (Profit after Tax or Net Profit).

EPS or Earnings per Share: EPS is PAT divided by total number of shares. Equity or Net worth, as we discussed earlier, is divided into small units called shares and bought and sold between investors at certain prices. Infosys has about 426 Crore shares (simplified) in total which together make up its Networth or Equity! Divide its Last PAT of Rs: 19351 Crore by 426 Crore shares and you get an “Earnings per Share” of Rs: 45.4 per share! Voila that is the EPS! Healthy PAT means healthy EPS. (We have simplified the calculation as minor technical factors are not our concern here. The matter of Standalone and Consolidated Shares and Profits and Sales will be discussed in the balance sheet and ratios Chapters. Continue the reading!).

Dividend Payout: Company either regularly or occasionally pays out a portion of its earnings back to their investors. This is a percentage of the PAT. If the Profit After Tax was Rs:10000 Crore and Dividends paid to the investors or share holders were Rs:5000 Crore then the Dividend Payout % is 50%. Dividend is generally declared as Dividend  per share or DPS. In case of Infosys the last Dividend payout was 59% which means 59% of its Profit After Tax (PAT) was paid out as dividend. If you held 10 shares of Infosys You got 10* (59% of the EPS) as Dividend. Remember this, companies need to retain a part of their PAT to make fresh investments for future growth. Therefore a company which is paying off 80-100% of its PAT as dividend might not have good growth prospects – Example can be – Castrol. But some businesses may pay high dividends and at the same time grow at rapid rates too. Example – Thyrocare.  But the underlying reason and sustainability of maintaining this combination have to be understood first.

I request you and urge you continue the reading regularly and complete this free Certified Course on Stock Market Fundamental Analysis. Leave your Queries in the comments below and I will answer each of them.

Go to the Next Chapter – How to read the Balance Sheet?

Go To Previous Chapter – Begin doing Stock Analysis or Fundamental Analysis.

Actions to be taken – This is where real ACTION begins! Open screener.in or any other stock market website. Find out one sector which you like and check out their income statement. Make a separate Excel sheet and write down the ones which you like, the reason for it and the ones you don’t like and the reasons for it. DO it For as many sectors as you feel like. Doing comparative analysis will give you a good idea as to which businesses are doing well and which ones are doing not so well. Do not miss out on this practice to get the maximum benefit from this reading!

(Our Quantum Stock Portfolio Solutions are backed by our Advanced Investeye33 Analytics (AIA) which predicted the 2020 correction, 2021 October market and 2022 market volatility well in advance. This AIA when backtested can predict Y2008 and Y2000 corrections and bottoms well in advance. JOIN NOW to experience the benefits which so many of our dear clients are enjoying. )

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Chapter 5: A Chat about the Balance Sheet. How to Read the Balance Sheet for Stock Fundamental Analysis:

If you have read the previous Chapter on How to Read the Income Statement and have done the Task given to You , You will feel more comfortable about the Financial Statement Analysis already! That brings us to the Next Step in this Journey – Reading the Balance Sheet.

Income Statement or Profit & Loss Statement is a like a story the company tells you about a certain time window from the past – say what happened in the Financial Year 2021 OR What Happened in the Last Quarter.

Balance Sheet on the other hand is giving you a snapshot of a certain day or a moment. It tells you say on 31^st March 2021 what was the amount of “debt” or “borrowings”, the amount of “Equity” and the amount of total “Assets” the company had. Note the terms in quotes, this is all that comprises of a balance Sheet. Now we will get know them and soon make our own personal Balance Sheet too!

5.1: Basic Concept of the Balance Sheet: Say You have Rs: 1 Cr Bank Balance and other investments. And You have a House as Property for which You have taken a Loan of 50 Lacs and House was valued or purchased at 75 Lacs. This is all you have for now. Now the House, Your Savings and Investments are ALL your total “Assets”. And the loan of 50 Lacs is ALL of your “Debt”.  What we do is we Add up the value of All your Assets and Subtract the “Debt” (or Loan or Borrowing) from it. What we get is Your “Equity”:

ALL Your “Assets” – ALL Your “Debt” = Your TOTAL “Equity”

i.e. Assets (Rs: 1 Core + Rs: 75 lacs) – Debts (Rs: 50 Lacs) = Equity (Rs: 1.25 Crore)

This is always the case:

Assets – Debt = Equity, this is always the case for any individual or business or organization.

OR,

Assets = Equity + Debt

This is what we call the “Balance” of Assets on one side and Liability + Equity on the other side. And we write it in the Form of  a “Balance Sheet” like this:

In screener.in or in multiple other websites for Stock markets the Balance Sheet is written in a single list form Like this:

This is because they are trying to share with you Records for last 10 years or so. Like This:

Now as You can see there are a Lot of Additional Items or Sub-divided items in the above Balance Sheet (s). And we will Read About that in the next part of this Chapter.

5.2: Reading the Entire Details of a Balance.

Now we will put our hands deep into the financial statement called Balance Sheet. First thing You can do is go to this link and download the Annual Report of Infosys.

Stock Market Watch Websites put their own format which is a little more concise than the detailed Balance Sheet shared by the company. But for us it is good to start getting used to the actual Balance Sheets also because we need to get used to in-depth studying. Below are the Two parts of the Infosys Mar’21 Balance Sheet (Annual Report Page 157) as you can see:

We start with assets. Do NOT get overwhelmed as after this Chapter, reading these balance sheets regularly for a month only will make it very comfortable for you. We define each item so please read along!

5.2.1: Assets: This is the Assets Side. Assets are Divided into two types – Non-current Assets and Current Assets. Non-Current assets or Long Term assets are those assets which have value or remain in the balance sheet for more than one year. Here Property, Plant Equipment, Right of use assets etc. are non-current assets because they will remain of concern to the company or of value to the value for more than one year.  Current assets are those items which will be of value or of concern to the company for less than one year. In case of Infosys receivables, certain investments etc. fall in this category. Note that Inventory is not included here because the company sells services and not goods. If it had been another company, say a Britannia, or Eicher Motors then there will be inventory because they sell “physical” stuff or goods.

• Non-Current Assets: As defined earlier, Non-Current assets are those assets which have value or remain in the balance sheet for more than one year. There are further subdivisions to this segment:
  • Property, Plant, Equipment: For Infosys these include things such as Buildings, Computers, Other Equipments, Vehicles etc. For a Car Company there can be a Factory. For a Shipping company there can be a ship or a Crane, or a Port! Check the Note Number reference given in the Balance pic. above and scroll below on the Annual Report. The details of each items is  mentioned  there. A company which produces more revenue against less assets than its peers can be a good investment idea.
  • Right-of-use Assets: These a releases and license rights. It can be Buildings on lease or equipment Usage rights on Lease Licensing etc.
  • Capital Work-in-Progress: This can be some Office Building under Construction, or some Technology under development.
  • Goodwill:  Goodwill or Intangible Assets are those Assets which are not material in nature but still provide value to the business. For Apple its technology and brand iphone/ipad/iPod are intangible assets. Say Infosys develops a “Blockchain” Technology.  And they visualize that BlockChain Tech will remain Valid for next 20 Years. Now let’s say the cost of developing this tech was Rs: 200 crores and two years has already passed since they have been selling it to their clients. Here the cost will be “amortized” over 20 years – that is it will be shown as an initial asset and every year 1/20^th of the asset value will be reduced. In the first year 200/20 or Rs:10 Crore will be reduced, in the second year another 10 Crore will be reduced, like this so on and so forth. So the Goodwill value for this “blockchain” asset will be  = Rs: 200 crores – Rs: 20 Crores, ie. Rs: 180 Cr.” The other reason for goodwill is when a company buys another valuable business and the cost paid is more than the mere value of the sale price of their hard assets. Obviously when you are a big tech company, and you buy another tech company, you look for more than just their computer sets, laptops and building and lights & Fans! You look for intangible value even if you have to pay some extra money for that! This extra value that you pay for gets added to the balance sheet in the Goodwill Segment. That is exactly what has happened in the case of Infosys here. Infosys had a Rs:167 Crore of Intangible Assets or Goodwill post “amortization” as of Mar’21. This was mainly due to takeover of “Skava” by Infosys. Skava provides Digital Solutions for Customer Experience Improvement to the various retail companies. The “valuation” of Skava was more than the mere liquidation(sale) value of its hard assets. So that extra amount was added as a Goodwill or Intangible asset in the Infosys Balance Sheet. We will look into the topic of  “Valuation” soon in this course. “Amortization” is like “Depreciation” only but this term is used for “Intangible Assets” (A proprietary technology, Brand Name, License etc) more while “Depreciation” is used more for “Tangible Assets” (Factory, Building, Computer, Server etc.)
  • Other Intangible Assets: Similar to previous explanation of goodwill. Only this was intrinsic matter this time in case of Infosys and not because of any outside business takeover.
  • Financial Assets: These can be loans to subsidiaries and employees, investments in debt and equity of subsidiaries, Government Bonds, Advance given for renting office or space, sub-renting etc. Again, check the details of 10 such balance sheets in annual reports referring to the notes and you will begin to understand there is no rocket science it!
  • Deferred Tax Assets (Net) & Income Tax Assets (Net): “Deferred Tax Assets (net) “ are net taxes that are accrued but the due date has not arrived yet. It can happen due to over payment or advance payment of taxes. Same goes in case of Income Taxes. We need not go deep into it right away.
  • Other Non-current Assets:  Most of the things are covered in the above categories. Few things which cannot be categorized in the above are added in this portion. In case of the balance sheet that we are looking,  these include revenues unbilled, “withholding taxes”.

At this point I would like to take a break. If you don’t want to then let’s get on to the Next part of this Chapter 5.

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