Case breakdown: Movie Golmaal
In this particular scene, Amol Palekar (Guy in the short kurta) is being interviewed. He is given a balance sheet by the interviewer to test his knowledge . He looks at the balance sheet and figures out that it has been prepared by someone who isn’t well versed with accounting.
What is Financial Statement Analysis?
Analysis of financial statements starts with scrutinizing the profit and loss account and then inspecting the balance sheet. Balance sheet is based on the accounting equation:
Assets = Liabilities + Shareholder’s Equity.
Income Statement on the other hand, shows a company’s revenues and expenses. Top line of the Company are the Sales of the company while bottom line of the company is the Net Income or Net Profit. Expenses are generally the costs that have been incurred for the operations of the company.
Analyzing both of them is an in-depth process though, so when Amol Palekar say “kis bewakoof ne bani hain yeh”, there must have been a glaring mistake in the financials for him to say something like this just by glancing at it. Maybe the balance sheet wasn’t balanced.
Ratio Analysis, trend analysis and Vertical analysis are some ways that help in interpreting financials.
Interpreting financials is done by looking at every line item in the balance sheet and Income Statement to figure out what impact would it have on the Company.
Written by: Ms. Gitika Chandra