Zerodha Varsity · Module 3 · Fundamental Analysis ← Prev: Ch 5–6 · P&L (Part 2) & Balance Sheet (Part 1)
Chapters 7–8. The other half of the balance sheet — what the company owns — then the statement that cuts through profit to show the one thing bills are paid with: cash.
A company's assets are listed at what they're worth now, not what they cost — a ten-year-old machine sits on the books at a fraction of its purchase price. Learning to read the asset side is learning to see through the sticker price to what a company actually holds today, and then to watch how every one of those assets quietly ties back to the profit statement.
Assets are the resources a company owns to generate revenue, split exactly like liabilities — by time. Non-current assets give benefit beyond 365 days; current assets are consumed or converted to cash within a year.
Within non-current assets sits Fixed Assets — things that can't be liquidated easily (land, plant, machinery, buildings, plus intangibles). ARBL reports tangible assets of ₹619.8 Cr and intangibles of ₹3.2 Cr. But those are net figures. Here's the key mechanic:
Gross block is what the company paid to acquire the asset; accumulated depreciation is all the wear-and-tear charged since incorporation; net block is what's reported on the balance sheet.
Two more fixed-asset lines: Capital Work in Progress (CWIP) — ₹144.3 Cr of assets still being built (buildings under construction, machinery under assembly); it moves into tangible assets once complete. And Intangible assets under development (₹0.3 Cr) — the same idea for patents or brands in the making.
Rising CWIP is a quiet tell that a company is building capacity for the future — new plants, new lines. It's spending now for revenue later. When you see CWIP growing meaningfully year on year, the company is investing in growth, not just maintaining.
Beyond fixed assets: non-current investments (₹16.07 Cr — long-term stakes, equity, debentures), long-term loans & advances (₹56.7 Cr, to group companies, employees, vendors), and other non-current assets (₹0.12 Cr).
Current assets are easily converted to cash within 365 days, funding day-to-day operations:
| Current asset | FY14 (₹ Cr) | What it is |
|---|---|---|
| Inventory | 335.0 | raw material, WIP, finished goods not yet sold |
| Trade receivables | 452.7 | money owed by customers/distributors |
| Cash & cash equivalents | 294.5 | most liquid — comes from the cash flow statement |
| Short-term loans & advances | 211.9 | advances, employee loans, advance tax |
| Other current assets | 4.3 | miscellaneous |
Total Assets = Fixed (₹840.8 Cr) + Current (₹1,298.6 Cr) = ₹2,139.4 Cr — exactly equal to total liabilities. The equation holds.
The statements aren't separate documents; they're one system. Each P&L line pulls on a balance-sheet line:
Credit sales lift receivables; buying on credit lifts payables and shifts inventory; buying assets accumulates depreciation on the balance sheet; taking on debt raises finance cost; and PAT flows into surplus. Everything connects.
In one breath: the asset side reports net block (gross less accumulated depreciation) plus current assets, sums exactly to total liabilities, and every asset ties back to a line on the P&L.
A shop can report ₹5,00,000 in sales and still not have the cash to pay a ₹4,00,000 loan due tomorrow — because a chunk of those "sales" was on credit and the money hasn't arrived. Profit is an opinion; cash is a fact. The cash flow statement is the one place the fact is written down.
Two shops. A coffee shop sells ₹5,500 all in cash — revenue and cash are the same. A laptop shop sells 20 laptops at ₹25,000 = ₹5,00,000 revenue, but 5 were on credit. Its P&L shows ₹5,00,000; its bank account holds only ₹3,75,000. If a ₹4,00,000 loan falls due, the shop is in a cash crunch despite a healthy-looking P&L. The cash flow statement exists to expose exactly this gap.
A company's survival depends far more on liquidity (cash) than on reported profit. A profitable company can go bankrupt if it can't pay its bills on time; a temporarily loss-making one with cash in the bank can ride out a rough patch. Read the cash flow statement to see which one you're holding.
Every legitimate business activity falls into one of three baskets:
The direction of every cash movement follows a simple rule, and it's the engine of the whole statement:
Companies split the statement into the three baskets. For ARBL FY14:
| Cash flow from | FY14 (₹ Cr) | FY13 (₹ Cr) |
|---|---|---|
| Operating activities | 278.7 | 335.4 |
| Investing activities | (344.8) | (120.05) |
| Financing activities | (53.1) | (34.96) |
| Net for the year | (119.19) | 179.99 |
ARBL consumed ₹119.19 Cr of cash in FY14 — but that's not alarm-worthy. Operating activities generated a healthy +₹278.7 Cr (a positive OA is always a good sign); investing consumed ₹344.8 Cr (expansion — the company is serious about growth); financing consumed ₹53.1 Cr (mostly dividends, no new debt). The net draw was covered by the opening balance carried from FY13.
Reading a negative total cash flow as bad news. ARBL "guzzled" ₹119 Cr — but because operating cash was strongly positive and the drain came from investing in growth, this is a healthy profile. A negative total funded by strong OA and capex is very different from a negative total caused by weak operations. Always decompose before you judge.
The close-out ties the statement to the balance sheet: opening balance ₹409.46 Cr (last year's closing) + this year's (₹119.19 Cr) + a small forex adjustment ₹2.58 Cr = closing cash ~₹292.86 Cr. That closing cash is exactly the "cash & cash equivalents" line under current assets on the balance sheet — the third link in the chain.
The whole "credit sale vs cash in hand" gap is about when money actually arrives. On the market side, that timing has sped up sharply since this 2014-era material: Indian equity settlement moved from T+2 to T+1 (fully rolled out by early 2023), and SEBI has piloted optional same-day (T+0) settlement. For you as an investor it means cash from a sale reaches your account the next working day. The company-level lesson is unchanged — profit still isn't cash — but the market's own cash cycle is faster than the source implies.
In one breath: profit and cash differ; the cash flow statement sorts every rupee into operating, investing or financing, and its closing balance is the same cash line that sits on the balance sheet.
Because the balance sheet shows the net block, not the gross block. Gross block is the acquisition cost; net block subtracts all accumulated depreciation since incorporation. An older asset has been depreciated for more years, so its net (carrying) value is lower even though it may still be in use.
Capital work in progress is money already spent on assets still under construction — plants, machinery being assembled. Rising CWIP usually signals a company investing in future capacity, spending now to earn later. Once complete, those assets move into fixed assets and start contributing to revenue.
Because the P&L books credit sales as revenue even before the cash arrives. A company can show strong profit while much of it is tied up in receivables, leaving too little cash to meet a bill due now. That gap between profit and liquidity is precisely what the cash flow statement reveals.
Not on its own. You have to decompose it. ARBL's total was negative because it invested heavily in growth while operating cash was strongly positive — a healthy profile. A negative total driven by weak operating cash is a very different, worrying story. Look at the operating line first.
The direction rule: increasing a liability (a loan) brings money in, so cash rises; increasing an asset (equipment) means paying for it, so cash falls. Every line in the cash flow statement is just this rule applied across operating, investing and financing activities.
Its closing cash balance is identical to the "cash and cash equivalents" line under current assets on the balance sheet. Opening cash (last year's close) plus the year's net flow plus any forex adjustment equals closing cash — which then appears on the balance sheet. That's the third link binding all three statements.
Assets split into non-current (>365d) and current (<365d), mirroring the liability side.
Net Block = Gross Block − Accumulated Depreciation; the balance sheet reports net.
CWIP is assets under construction; rising CWIP signals investment in future capacity.
Total assets equal total liabilities — the sheet balances (₹2,139.4 Cr).
The P&L and balance sheet are one system; every P&L line pulls a balance-sheet line.
Profit isn't cash: credit sales inflate revenue before money arrives.
Cash flow = operating + investing + financing; positive operating cash is a health sign.
Direction rule: liability↑ → cash↑; asset↑ → cash↓. Closing cash = the BS cash line.
Part A. Gross block = opening + additions − deductions. Accumulated deprec = opening + this year's. Net block = closing gross − accumulated deprec.
Part B. Net flow = OA + IA + FA. Closing cash = opening + net flow. Judge by decomposing: is operating cash positive and is the drain investment?
PART A (Rs. Cr)
Closing gross block = 200 + 60 - 5 = 255
Accumulated deprec = 40 + 18 = 58
Net block = 255 - 58 = 197
PART B (Rs. Cr)
Net cash flow = 500 + (620) + 40 = (80)
Closing cash = 300 + (80) = 220
Health check: OA strongly +ve (+500),
drain is investing (capex) -> HEALTHY.
(a negative total from weak OA would NOT be)Why it matters: the block reconciliation and the OA-first cash read are the two moves that separate "the number looks scary" from "the number is actually fine."
Reasoning: each collides with a specific point — net block vs market value, decomposing cash flow, profit vs cash, and classifying activities.
1) ERROR: net block == resale/market value.
FIX: net block is an accounting carrying value
(gross - accumulated deprec), NOT market price.
2) ERROR: negative total cash flow == trouble.
FIX: decompose it. Strong operating cash + a capex-driven
drain is HEALTHY. Weak operating cash is the worry.
3) ERROR: revenue == cash in the bank.
FIX: credit sales count as revenue before cash arrives.
Check the cash flow statement for actual cash.
4) ERROR: buying machinery = financing activity.
FIX: it's an INVESTING activity (buying an asset).
Financing = debt, dividends, fresh capital.Why it matters: misreading net block, cash flow sign, and activity type are the classic ways beginners misjudge an otherwise-fine balance sheet.