Where money comes from and where it goes
Finance is the study of how people, businesses and governments get money, use it, and keep track of it. This lesson starts with one household's month, then looks at what a large Indian company did with its money in a year.
- Level
- Beginner
- Reading time
- About 20 minutes
- Know this first
- Nothing. This is the start.
By the end you will be able to:
- say what finance is and what questions it answers
- tell personal, business and public finance apart
- explain why a rupee today is worth more than a rupee later
- read the three big movements of money in a real company's year
Finance in one sentence
Finance is about three questions. Where does money come from? What should be done with it? And how do we know whether it is working? Every topic on this site is a closer look at one of those questions.
The questions are the same whether the money belongs to a family, a shop or a government. What changes is the scale and the tools. A family decides how much to save. A shop decides whether to borrow for new stock. A government decides how to raise taxes and what to spend them on.
Three kinds of finance
| Kind | Who | Typical questions |
|---|---|---|
| Personal finance | A person or a household | How much to spend and save? Should I take a home loan? How do I prepare for emergencies and retirement? |
| Business finance | A shop, a firm or a company | Are we earning more than we spend? How do we pay suppliers on time? Should we borrow to expand? |
| Public finance | Governments and public bodies | How are taxes raised? What is spent on roads, schools and health? How is a deficit funded? |
This site mostly follows business finance, with personal examples where they make an idea clearer. That is where the reading of accounts, which most of the later lessons need, comes from. Large companies are also the ones that publish detailed accounts, so we can learn from real numbers.
Try it with a month
Priya works in an office and is paid ₹60,000 a month. She is made up for this lesson. Whatever she does not spend, she keeps. Move the sliders to change her pay and her spending, and watch what a year of the same month does.
Priya keeps ₹12,000 a month, which is 20% of her pay. In a year that is ₹1,44,000, enough to cover about 3.0 months of her spending if her pay stopped.
Drag spending above pay and the "short" figure turns red. A shortfall has to be met by using savings or by borrowing, and borrowing means paying interest later. This is the idea that sits under every later lesson: money that comes in and goes out, and a record of what is left.
Money over time
Money has a time dimension. ₹1,00,000 today is worth more than ₹1,00,000 a year from now, because today's money can be put to work. If a bank paid 6% a year, ₹1,00,000 deposited today would be ₹1,06,000 in a year. The 6% here is an assumption for illustration, not a rate any bank is offering.
This is why borrowing costs something and why saving earns something. It is also why timing matters throughout finance: a payment due next month is not the same as a payment due next year. Later lessons come back to this under the name time value of money.
A real company: Titan
Businesses face the same three questions on a larger scale. Titan Company Limited, the Tata group company behind Titan watches and Tanishq jewellery, publishes a statement of cash flows. It sorts every movement of money in a year into three groups. All figures below are Titan's standalone figures for the year to 31 March 2024, in ₹ crore. One crore is ten million.
| ₹ crore | FY2023-24 | What the group answers |
|---|---|---|
| Operating activities | 2,030 | What the business itself brought in |
| Investing activities | (4,634) | What was spent on things for the future |
| Financing activities | 2,757 | What was raised from lenders and owners |
| Net change in cash | 153 | What is left after all three |
The business itself, selling jewellery and watches, brought in ₹2,030 crore of cash after tax. That is the first group, operating activities. Titan then spent ₹4,634 crore on investing: buying shops and equipment, and putting money into other companies and investments. That is more than the business brought in, so it needed money from elsewhere.
It raised ₹2,757 crore from financing, mainly by borrowing. Together the three movements left its cash ₹153 crore higher, from ₹119 crore to ₹272 crore.
Read the three lines as the three questions in action. Where did the money come from? Mostly the business, and then borrowing. What was done with it? Mostly invested for the future. And is it working? The answer is in the lessons that follow, which teach you how to check. This is an educational reading of published figures, not a view on whether Titan's shares are a good or bad investment.
Finance and its neighbours
Finance sits beside two subjects it is often confused with.
| Subject | What it does | Example |
|---|---|---|
| Accounting | Records what happened and reports it in a standard form | Producing Titan's profit and loss account |
| Finance | Uses that information to decide where money should come from and go | Deciding whether Titan should borrow to open more shops |
| Economics | Studies how markets and whole economies behave | Why gold prices and interest rates move |
Accounting comes first in this site's order because you cannot make good money decisions from accounts you cannot read. The next five lessons are accounting basics, and they underpin everything that follows.
Finance around the world
The three questions of finance, where money comes from, what to do with it and how to tell whether it is working, are the same in every country. What changes from one country to another is the way the answers are written down. A reader who learns to see those differences can pick up the accounts of a company anywhere, and this site is built for that kind of reader. The lessons that follow use Titan, a company reporting in Indian rupees, and three of the largest companies in the world: Apple and Microsoft, which report in US dollars, and Toyota, which reports in Japanese yen.
The table sets out the conventions behind each set of accounts. Four things differ even for companies of similar size: the rulebook that sets how profit and assets are measured, the currency, the unit in which the numbers are quoted, and the date on which the financial year closes.
| Company | Standard used | Currency and unit | Fiscal year ends | Revenue, latest year |
|---|---|---|---|---|
| Apple | US GAAP | US dollars, millions | Late September | $416,161 million |
| Microsoft | US GAAP | US dollars, millions | 30 June | $281,724 million |
| Toyota | IFRS Accounting Standards | Japanese yen, millions | 31 March | ¥48,036,704 million |
| Titan (India) | Ind AS | Indian rupees, crore | 31 March | ₹47,114 crore |
The rulebooks are the first thing to know. Apple and Microsoft follow US generally accepted accounting principles, usually called US GAAP. Toyota follows IFRS Accounting Standards, issued by the International Accounting Standards Board, and Titan follows the Indian Accounting Standards, Ind AS, which are modelled on IFRS. The IFRS Foundation keeps profiles for 170 jurisdictions and states that companies in more than 140 jurisdictions must use IFRS when they report. The United States is the large exception: its listed companies use US GAAP. Throughout this site, a short section in many lessons points out where the two systems treat the same thing differently.
Reading the units
A number in a financial statement is meaningless without its unit. Apple reports revenue of $416.2 billion for its latest year, but it prints the figure as 416,161 and the heading says "in millions". Microsoft's $281.7 billion is printed the same way. Toyota's revenue is printed as 48,036,704, in millions of yen, which is ¥48.0 trillion. Titan's revenue is ₹47,114 crore, and a crore is ten million, so that is ₹471.1 billion.
The words for large numbers are where most confusion starts, so here is the key:
- Million, billion, trillion. One million is 1,000,000. One billion is a thousand million, written 1,000,000,000. One trillion is a thousand billion. This is the system used by US and most international filings.
- Lakh and crore. In India, large amounts are grouped in twos after the first three digits. One lakh is 100,000, written 1,00,000. One crore is 10,000,000, written 1,00,00,000, which is ten million. One hundred crore is one billion.
- Thousands separators. International filings group digits in threes: 1,234,567. Indian convention writes the same number 12,34,567. The digits are the same; only the commas move.
This site writes numbers with the international grouping in its newer lessons, and states the unit in the heading of every table. Whenever you read a filing, find the line near the top of each statement that says "in millions" or "in thousands" before reading anything else. Mistaking thousands for millions is a thousandfold error.
Why numbers in different currencies cannot be compared by eye
Toyota's revenue of ¥48 trillion looks larger than Apple's $416 billion because the yen is a currency with a much smaller unit. To compare the two businesses, the yen figure has to be converted at an exchange rate, and the rate itself moves from day to day. The conversion choice matters, so careful analysis states which rate it used: the rate on the balance sheet date for assets and liabilities, and an average rate for the year for revenue and costs.
Exchange rates also affect the accounts directly. Toyota earns most of its profit outside Japan and holds large foreign subsidiaries. In its latest year, ¥705,292 million of foreign exchange gains appear within income before tax, which is 11.0% of the ¥6,414,590 million total. In the same year, converting the accounts of its foreign subsidiaries into yen reduced its other comprehensive income by ¥827,848 million. Currency moves added to profit and subtracted from equity at the same time, in separate lines of the same statements. A company's currency, and the currencies it earns in and borrows in, are part of its finance.
For this reason the lessons in this site compare ratios, such as margins, growth and the share of assets financed by debt, far more often than they compare raw amounts. A ratio has no currency, so a margin in yen can be set beside a margin in dollars.
Fiscal years do not line up
Apple's year ends in late September, Microsoft's on 30 June, and Toyota's and Titan's on 31 March. Two companies' "latest year" therefore cover different twelve months, and a comparison of results ends up comparing different periods of the economy. Most large Japanese and Indian companies close their books on 31 March, while many US companies use the calendar year or, like these two, a different year entirely. When this site puts companies side by side, the table says which year each belongs to, and the lesson on the income statement shows how one-off events can move a single year.
Common mistakes
Thinking finance means picking shares
Investing is one part of finance. Budgeting, borrowing, running a business and tax are others. Reading accounts is a skill for all of them.
Thinking finance is only for large companies
A household and a one-person shop face the same questions. The scale is different, not the logic.
Treating income as the same as wealth
Income is what comes in over a period. Wealth is what is owned at a point in time, after debts. A high earner who spends everything has no wealth to show for it.
Ignoring the time dimension
A figure with no period or date attached is hard to use. "Profit of ₹5 lakh" means little until you know whether it is for a month or a year.
Try it yourself
1. A household earns ₹85,000 a month and spends ₹70,000. How much does it keep in a year, and how many months of its spending does that cover?
Show the working
It keeps ₹15,000 a month, which is ₹1,80,000 in a year. Monthly spending is ₹70,000, so ₹1,80,000 ÷ ₹70,000 is about 2.6 months of spending.
2. Titan's operating activities brought in ₹2,030 crore and investing used ₹4,634 crore. Without financing, how much would its cash have changed by?
Show the working
₹2,030 crore − ₹4,634 crore = −₹2,604 crore. Cash would have fallen by ₹2,604 crore. Financing of ₹2,757 crore more than covered the gap.
3. Which kind of finance is each? (a) A family deciding on a car loan. (b) A shop checking whether it can pay suppliers this week. (c) A state budgeting for road building.
Show the working
(a) is personal finance, (b) is business finance and (c) is public finance.
Where to go next
The next lessons follow one path. First the building blocks of accounts: profit and loss, then what a business owns and owes, then the equation that links them. After that, cash versus profit and the two ways of recording both. Each lesson uses the same small shop and then a real company, and each can be read on its own once you have the earlier ones.
- Revenue, expenses and profit
- Assets, liabilities and equity
- The accounting equation
- Cash vs profit
- Accrual vs cash accounting
Key terms
- Finance
- The study of how money is raised, used and tracked over time.
- Income
- Money earned over a period.
- Savings
- The part of income not spent.
- Interest
- The price of using money over time.
- Borrowing
- Taking money that must be repaid, usually with interest.
- Investing
- Putting money into something expected to benefit later.
- Financial year
- The twelve-month period accounts cover. In India it runs from 1 April to 31 March.
- Crore
- Ten million. One lakh is one hundred thousand.
Questions people ask
Do I need to be good at maths?
No. Most of finance is arithmetic with a few rules, and every lesson here shows the working. If you can add, subtract, multiply and divide, you can follow it.
Is finance the same as accounting?
No. Accounting records and reports. Finance uses those records to make decisions about money.
Why does this site use real companies?
Real accounts show how the ideas look when nothing has been tidied for teaching. Every figure is taken from the company's own published statements and checked.
Is this financial advice?
No. The lessons explain how to read and understand finance. They are not recommendations to buy, sell or hold any share or product.
Sources and review
- Titan Company Limited, audited standalone and consolidated financial results with statements of cash flows for the year ended 31 March 2024, filed with BSE. Source of the cash flow figures.
- Institute of Chartered Accountants of India, Ind AS 7, Statement of Cash Flows, which defines operating, investing and financing activities.
- Apple Inc., Form 8-K, Exhibit 99.1: fourth quarter and full-year fiscal 2025 results, filed with the US Securities and Exchange Commission. Source of Apple's statements.
- Microsoft Corporation, Form 8-K, Exhibit 99.1: fourth quarter and fiscal year 2025 results, filed with the US Securities and Exchange Commission. Source of Microsoft's statements.
- Toyota Motor Corporation, FY2025 Financial Summary (IFRS, unaudited, in millions of yen), furnished to the US Securities and Exchange Commission on Form 6-K. Source of Toyota's statements.
- IFRS Foundation, Use of IFRS Accounting Standards by jurisdiction, for the jurisdiction profiles.
How the numbers were checked: Titan's three cash movements were rebuilt from the printed lines and add up to the printed change in cash, from the opening to the closing balance. Priya's figures are calculated on this page.