Thursday, March 1, 2018

5 Tips for Reading a Balance Sheet

The Indian stock market indices have come off their Jan '18 tops and have been consolidating sideways for the past 4 weeks. There is every possibility that there will be some more consolidation or correction at least till Mar 31 '18.

From Apr 1 '18, the re-introduced LTCG tax comes into effect. That can put a near-term floor on the indices. From mid-Apr, Q4 (Mar '18) results season will start. 

If Q4 results of India Inc. show any improvement over Q3 results - as they are expected to do - buyers may overwhelm sellers, and stock indices can resume their upward trajectory.

This may be as good a time as any to start preparing a 'buy list' from companies that have performed well in the previous three quarters. 

How to choose which companies to put on the 'buy list' from the several hundreds that declared good results? The best place to start is to read their annual reports, and choose the ones with the strongest balance sheets.

Given below are links to three introductory articles published in investopedia.com to get you started on balance sheet analysis:

1) 5 Tips for Reading a Balance Sheet 

2) Reading the Balance Sheet

3) Breaking Down the Balance Sheet

There are several links in the above articles which can help you to dig deeper into balance sheet analysis.

If you don't feel excited about analysing balance sheets and identifying good companies for investment, fret not. You can start SIPs in highly-rated equity and balanced mutual funds, and leave all the analysis to fund managers.

(Wishing all visitors, regular readers, g+/fb/twitter followers and newsletter subscribers a safe, colourful and happy Holi.)

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