Statement 1: Profit & Loss (P&L) — Income Statement
The P&L shows revenue, costs, and profitability over a period. For Indian startups, the P&L structure under Companies Act Schedule III:
- Revenue from Operations: Net of GST (show gross and net separately). Include subscription revenue, transaction fees, service revenue, product revenue.
- Cost of Revenue (COGS): Direct costs to deliver the product/service — cloud hosting (AWS/Azure India), payment gateway fees (Corpfy Banking & Treasury charges 2% per transaction), third-party API costs, delivery costs.
- Gross Profit = Revenue − COGS
- Operating Expenses: Employee costs (salaries + PF 12% employer + ESI 3.25% + gratuity provision), marketing & advertising, rent, software subscriptions, professional fees.
- EBITDA = Gross Profit − Operating Expenses
- Depreciation & Amortisation: As per Companies Act Schedule II rates.
- EBIT = EBITDA − D&A
- Interest Expense: On any debt, convertible notes, or working capital loans.
- PBT (Profit Before Tax) = EBIT − Interest
- Tax: Corporate tax at 25.17% (with surcharge & cess) for Indian companies; new regime 22% for base rate; MAT 15% applies if tax liability is lower.
- PAT (Profit After Tax) = PBT − Tax
Statement 2: Balance Sheet
Snapshot of assets, liabilities, and shareholders' equity at a point in time.
- Assets: Cash & bank balances, trade receivables, inventory, prepaid expenses, fixed assets (net of depreciation), intangibles (IP, software)
- Liabilities: Trade payables, GST payable, TDS payable, salary payable, deferred revenue, convertible instruments (CCPS, CCDs)
- Shareholders' Equity: Share capital (paid-up), securities premium, retained earnings (accumulated deficit for loss-making startups)
- Key check: Assets = Liabilities + Equity (always must balance)
Statement 3: Cash Flow Statement
Tracks actual cash inflows and outflows — different from P&L which includes non-cash items.
- Operating Cash Flow (OCF): Cash from core business operations — collections from customers less payments to vendors, employees, tax authorities
- Investing Cash Flow (ICF): Capital expenditure on assets, software development costs capitalised
- Financing Cash Flow (FCF): Proceeds from fundraising (equity/debt issuance), repayment of loans
- Net Cash Change = OCF + ICF + FCF
- Cash Flow is king for Indian startups — a P&L-profitable startup can still fail if it runs out of cash due to working capital gaps
3-Statement Model Linkage (Critical)
- PAT from P&L → flows into Retained Earnings on Balance Sheet
- D&A from P&L → added back in OCF; asset net book value reduces on Balance Sheet
- Fundraising proceeds → Balance Sheet cash increases; Financing CF shows inflow
- Working capital changes (receivables, payables) → link Balance Sheet to Cash Flow