Vinu: Manu, as bankers we see balance sheets and P&L statements every day. But everyone says we should read financials “beyond the numbers.” What does that actually mean?

Manu: It means not stopping at totals and ratios. Financial statements tell a story about business behaviour, cash discipline, intent of the promoter, and hidden risks. Numbers are only the starting point.

Vinu: Let’s start from the beginning. When you open a borrower’s financials, what do you look at first?

Manu: I first look at consistency and structure, not profitability. Are the statements audited? Are accounting policies stable? Sudden changes in depreciation method or revenue recognition are early warning signals.

Vinu: Most bankers jump straight to profits. Is that a mistake?

Manu: Often, yes. A firm may show ₹80 lakh profit, but if debtors have increased by ₹1.5 crore, the profit is only on paper. I always reconcile profit with cash generation.

Vinu: So cash flow is more important than profit?

Manu: Absolutely. Profit answers “Is the business viable?”

Cash flow answers “Can the borrower repay the bank?”

A company earning ₹1 crore profit but generating negative operating cash flow is risky.

Vinu: How do you read the balance sheet beyond totals?

Manu:  By examining quality of assets and liabilities. For example, sundry debtors of ₹3 crore on sales of ₹4 crore indicates stress. Similarly, heavy reliance on short-term borrowings to fund fixed assets shows poor financial discipline.

Vinu: What about capital and reserves?

Manu: Look at how profits are used. If profits are high but withdrawals and related-party loans are rising, it signals diversion. Retained earnings should strengthen net worth, not disappear.

Vinu: Can ratios alone mislead a banker?

Manu: Very easily. A current ratio of 1.5 looks comfortable, but if inventory is obsolete or debtors are long overdue, liquidity is weak. Ratios must be validated with underlying numbers.

Vinu: How do expenses help in reading intent?

Manu: Expenses reveal management behaviour. Sharp increases in administrative expenses, rent, or commission without growth in turnover may indicate profit manipulation or siphoning.

Vinu: What role do notes to accounts play?

Manu: A critical one. Contingent liabilities, related-party transactions, unsecured loans from promoters, and guarantees are often hidden there. Ignoring notes means missing half the risk.

Vinu: How do you link financials with banking operations?

Manu: By matching statements with account conduct. If sales are ₹5 crore, but monthly credits average only ₹15 lakh, turnover is not routed through the bank. That is a serious concern.

Vinu: Any final takeaway for bankers?

Manu: Read financial statements like an investigator, not a calculator. Ask why numbers changed, how profits were generated, and whether cash supports them. Beyond numbers lies credit judgment.

Vinu: That makes sense. Financial statements are not just reports—they’re risk signals.

Manu: Exactly. And a good banker learns to read those signals early.

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