Search+Intelligent InvestingSynopsisEvery rupee a company spends has to be accounted for somewhere. A cost may be charged as an expense and reduce current profit, or it may be capitalised and shown as an asset on the balance sheet, not affecting current year’s profit. That choice can change how profitable and financially strong a company appears. It is also where capitalisation and capital work-in-progress, or CWIP, can become a source of accounting manipulation.Most people do not bother to read an annual report for two simple reasons: They believe they will not understand it, and they are not quite sure what they are supposed to look for.That is probably one of the biggest mistakes an investor can make. An annual report is where almost everything about a company eventually shows up. The good things are usually highlighted, explained, and sometimes even overplayed. The uncomfortable things are rarely ETMarkets.com 27 mins readAug 14, 2026, 10:56:00 PM ISTGift this Story to your friendsFONT SIZEAbcSmallAbcMediumAbcLargeSAVEPRINTCOMMENTContinue reading with one of these options:Limited AccessFreeLogin to get access to some exclusive stories & personalised newslettersLogin NowUnlimited AccessStarting @ Rs120/monthGet access to exclusive stories, expert opinions & in-depth stock reportsSubscribe NowETUh-oh! This is an exclusive story available for selected readers only.Worry not. You’re just a step away.What’s Included withETPrime Membership
There is one line where a loss can hide for years. If you own the stock, you find out last
Every rupee a company spends has to be accounted for somewhere. A cost may be charged as an expense and reduce current profit, or it may be capitalised and shown as an asset on the balance sheet, not affecting current year’s profit. That choice can change how profitable and financially strong a company appears. It is also where capitalisation and capital work-in-progress, or CWIP, can become a source of accounting manipulation.
TL;DRAI
Capitalisation tricks hide losses by shifting costs to balance sheet assets (CWIP), inflating profit until discovery causes shareholder loss. Annual report scrutiny on capitalisation is critical: loopholes signal governance weakness and hidden financial risk.
562 words~3 min read
