As mentioned in Chapter 1, the most important part of fundamental analysis involves delving into the financial statements or financial reports of companies. Financial information, which accounting helps to standardize, is presented in the companies’ financial reports. Indian listed companies must periodically report their financial statements to the investors and regulators. Why is this so? The laws and rules that govern the securities industry in the India derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it. To achieve this, the Securities and Exchange Board of India (SEBI), the market regulator in India, requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves if a company’s securities are a good investment. Only through the steady flow of timely, comprehensive and accurate information can people make sound investment decisions.
3.0 Understanding Financial Statements