How can beginners assess a company’s financial records before investing?
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Oh, let's dive into the world of understanding a company's financial records before buying shares or ETFs. Imagine you're Mama Ngozi, who is considering investing in a vegetable farm in the village. Just like she would inspect the farm's past harvest records, checking if they made a profit or loss,Read more
Oh, let’s dive into the world of understanding a company’s financial records before buying shares or ETFs. Imagine you’re Mama Ngozi, who is considering investing in a vegetable farm in the village. Just like she would inspect the farm’s past harvest records, checking if they made a profit or loss, you too need to look into a company’s financial records before investing.
When you want to buy shares or ETFs (Exchange-Traded Funds) in a company, it’s essential to look at the company’s financial statements. These financial records are like a report card that tells you how well the company is performing financially. Here are a few things you can check:
1. Revenue: This is the money the company makes from selling its products or services. Like Mama Ngozi keeping track of how many baskets of tomatoes she sells, you want to see if the company is making a good amount of money.
2. Expenses: Just as Mama Ngozi needs to know how much she spends on buying seeds, fertilizers, and paying workers, you want to see how much the company is spending to make that revenue.
3. Profit: The profit is what’s left after subtracting the expenses from the revenue. Mama Ngozi wants to see a good profit from her farm, and you also want to see if the company is making a profit.
4. Debts: Mama Ngozi wouldn’t want to buy a farm with too many debts. Similarly, you want to check if the company has manageable debt levels.
5. Assets and Liabilities: Assets are what the company owns, like buildings and equipment, while liabilities are what the company owes. You want to make sure the company has more assets than liabilities.
To get this information, you can look at the company’s financial reports like the Income Statement, Balance Sheet, and Cash Flow Statement. These reports will give you a clear picture of the company’s financial health.
Remember, just like Mama Ngozi carefully inspects the tomatoes before buying, taking the time to understand a company’s financial records can help you make informed decisions when buying shares or ETFs. So, before you invest your hard-earned money, make sure to do your homework and understand the company’s financial story.
See lessBefore investing in a company, beginners should not look only at how popular the company is or how much money they could make. Financial records help you understand the company’s financial health—whether it is making money, managing its debts, and growing sustainably. You can start with these threeRead more
Before investing in a company, beginners should not look only at how popular the company is or how much money they could make. Financial records help you understand the company’s financial health—whether it is making money, managing its debts, and growing sustainably. You can start with these three areas:
1. Check the company’s revenue and profit: Look at how much money the company makes and how much remains after expenses. Check whether revenue and profit have been growing or declining over several years.
2. Check its debts and cash flow: Find out how much the company owes and whether it generates enough cash to pay its bills and operate its business. A company can report profit but still have poor cash flow.
3. Compare its financial position over time: Review its assets, liabilities, equity, and key ratios such as profit margin and debt-to-equity ratio. Comparing several years gives you a clearer picture than looking at one year alone.
Henry Paul Akinmade
See lessThe key idea is Fundamental analysis: Fundamental analysis = checking whether the company is financially healthy, growing, and reasonably valued before buying its shares. NGX provides company financial statements and disclosure information, including annual reports and quarterly/interim results. ItsRead more
The key idea is Fundamental analysis:
Fundamental analysis = checking whether the company is financially healthy, growing, and reasonably valued before buying its shares.
NGX provides company financial statements and disclosure information, including annual reports and quarterly/interim results. Its X-Compliance system also tracks released financials and compliance matters.
Step 1 — Find the company’s financial statements
Suppose you want to analyse MTN Nigeria.
On the NGX website, you look for the company’s:
Annual Report
Audited Financial Statements
Q1 results
Half-year/Q2 results
Q3 results
Corporate announcements
NGX’s company profiles can show the financial statements filed by a company. For example, the NGX profile for Aradel lists its 2025 audited accounts and 2026 quarterly statements.
For fundamental analysis, I should start with:
Latest annual report + latest quarterly result.
Step 2 — Check Revenue
Revenue simply means:
How much money did the company generate from its business?
Imagine:
Year Revenue
2023 ₦1.5 trillion
2024 ₦2.0 trillion
2025 ₦2.5 trillion
The company is generating more revenue each year.
That’s something we want to investigate positively.
But don’t stop there.
Ask:
“Revenue is growing, but is the company actually making more profit?”
Because a company can sell more while its costs grow even faster.
Step 3 — Check Profit
Look at:
Profit Before Tax (PBT)
and
Profit After Tax (PAT)
For example:
Year Revenue PAT
2023 ₦1.5tn ₦150bn
2024 ₦2.0tn ₦220bn
2025 ₦2.5tn ₦300bn
Now we are seeing:
Revenue ↑
Profit ↑
That gives us more information about the company’s growth.
But again, we don’t just look at one year.
Look at the trend.
A single good year doesn’t tell you much.
3–5 years of financial history is much more useful.
NGX’s X-Factbook specifically provides five-year financial performance and corporate-action history for listed companies.
Step 4 — Calculate Profit Margin
This one is very important.
Suppose:
Revenue = ₦100 billion
Profit = ₦10 billion
Then:
Profit Margin = Profit ÷ Revenue × 100
= ₦10bn ÷ ₦100bn × 100
= 10%
Meaning:
For every ₦100 the company generates, about ₦10 becomes profit.
Now imagine:
Year Profit Margin
2023 8%
2024 9%
2025 10%
That’s interesting because the company isn’t just growing sales; it’s becoming more profitable relative to revenue.
Step 5 — Check the Balance Sheet
This is where we ask:
“What does the company own and what does it owe?”
Look for:
Assets
What the company owns.
Examples:
Cash
Buildings
Equipment
Receivables
Investments
Liabilities
What the company owes.
Examples:
Loans
Bonds
Trade payables
Other obligations
Shareholders’ Equity
Basically:
What belongs to the shareholders after liabilities are deducted from assets.
The simple relationship is:
Assets − Liabilities = Equity
💳 Step 6 — Check Debt
This is VERY important.
Suppose:
Company A:
Debt = ₦50bn
Cash = ₦40bn
Company B:
Debt = ₦500bn
Cash = ₦20bn
You wouldn’t want to look at their profits alone.
You’d ask:
“How much debt is this company carrying?”
Debt isn’t automatically bad.
A company can borrow money and use it to expand.
The question is:
Is the company generating enough cash/profit to comfortably handle its debt?
Step 7 — Check Cash Flow
This is one of the places beginners often make mistakes.
A company can report:
₦100 billion profit
but have much less actual cash coming into the business.
So look at the:
Statement of Cash Flows
Pay particular attention to:
Cash Flow from Operating Activities
This basically tells us how much cash the company’s normal business operations are generating.
For example:
Year Operating Cash Flow
2023 ₦80bn
2024 ₦110bn
2025 ₦150bn
That gives you another perspective on the company’s financial health.
Step 8 — Understand the BUSINESS itself
This is where fundamental analysis goes beyond numbers.
Ask:
What does the company actually do?
For example:
MTN Nigeria
→ telecommunications
Dangote Cement
→ cement
Access Holdings
→ financial services/banking
Seplat Energy
→ energy
Then ask:
What makes this company capable of continuing to make money?
Look at:
Competition
Customers
Market size
Products
Expansion
Regulation
Economic conditions
Management
Competitive advantage
Because numbers tell you what happened.
The business analysis helps you understand why it happened and what could affect it going forward.
Step 9 — Check EPS
EPS = Earnings Per Share
Very simple:
How much profit is attributable to each share?
Suppose a company makes:
₦100 billion profit
and has:
10 billion shares.
EPS:
₦100bn ÷ 10bn = ₦10 per share
You can then compare EPS over several years.
For example:
Year EPS
2023 ₦5
2024 ₦7
2025 ₦10
Again, we’re looking at the trend, not just one number.
Step 10 — Check Dividends
If you’re interested in dividend-paying NGX companies, check:
Dividend per share
Dividend history
Payout ratio
Whether earnings support the dividend
Whether dividends have been consistent
For example:
Year EPS Dividend
2023 ₦10 ₦3
2024 ₦12 ₦4
2025 ₦15 ₦5
This tells you more than simply saying:
“This company pays dividends.”
You want to know whether the dividend is supported by the company’s earnings and cash generation.
Step 11 — Now check the SHARE PRICE
This is where fundamental analysis becomes really interesting.
A good company doesn’t automatically mean its stock is attractively priced.
Suppose:
Company A is making excellent profits.
But its share price has already risen enormously.
You need to ask:
“Am I paying too much for these earnings?”
That’s where valuation ratios come in.
P/E Ratio
P/E = Share Price ÷ EPS
Example:
Share price = ₦100
EPS = ₦10
Therefore:
P/E = 100 ÷ 10 = 10
Meaning you’re paying roughly 10 times the company’s earnings per share.
But don’t say:
“10 P/E means cheap.”
You need to compare it with:
The company’s historical P/E
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Expected earnings growth
Interest rates
The company’s risk