Case breakdown: Movie Veertaa:
Watch this scene carefully from the movie Veerta. Sunny Deol finds a worker (Mohan) who has actually done M.com and can read a balance sheet.
The balance sheet specifically doesn’t list out the profit, the balance sheet is a statement that lists down the assets, liabilities, and stockholders’ equity of a company for a particular period. The balance sheet is a good indicator of whether the company is financially stable or not. It helps owners and lenders to understand whether the company is just surviving or expanding.
Although Mohan seems to be very smart, looking at the income statement or the profit and loss account would clearly tell him the amount of profit of the company. The income statement lists down the income and expenditure of the company and clearly shows whether the company is in profit or loss.
Additionally, looking at cash flow statements and statements of stockholders’ equity would make an investor understand the overall health of a company. Understanding whether the company is making financially sound decisions or how it is performing over time gives one a holistic point of view. Therefore looking at all the financial statements helps in better understanding the net income or profit of the company.
How to figure profit from Balance Sheet:
This is facebooks’ balance sheet, it doesn’t indicate the profit or income of the company directly, but after reading notes and statements of stockholders’ equity, one can figure out the profit, but it would take a little more than a minute for sure.
Below is the snapshot of the income statement which clearly shows the net income or profit of the company.
I hope Rs. 8 crores that Mohan mentions is not the entire stockholders’ equity (which might include retained earnings and capital) of the company.