What Financial Metrics Should I Check Before Investing in a Nigerian Stock?

A very good question. The red and green colours on NGX are useful for showing what has already happened, but they should not be the main reason for buying a stock. A serious investor should go behind the share price and examine the business itself.

I would divide my analysis into 10 major areas:

1. Revenue growth

Revenue is the money the company generates from its business.

Look at the last 3 to 5 years and ask:

– Is revenue increasing?
– Is the growth consistent?
– Is the growth coming from the actual business or from one-off items?
– Is the company growing faster or slower than its industry?

For example, imagine Company A:

2022 revenue: ₦100bn
2023: ₦115bn
2024: ₦135bn
2025: ₦160bn

That is encouraging because the company is consistently growing.

But if revenue is:

₦100bn → ₦150bn → ₦90bn → ₦160bn,

I would investigate further. Something is causing large fluctuations.

Don’t judge revenue alone. A company can increase sales while making less money.

2. Profit growth

Look at:

– Gross profit
– Operating profit
– Profit before tax
– Profit after tax

The most important question is: Is the company actually becoming more profitable?

Example:

Company B:

Revenue = ₦100bn
Profit = ₦10bn

Next year:

Revenue = ₦130bn
Profit = ₦15bn

That is better because both sales and profit increased.

But imagine:

Revenue = ₦130bn
Profit = ₦3bn

I would be concerned. Sales increased 30%, but profit collapsed.

Also calculate the profit margin.

If a company makes ₦10bn profit from ₦100bn revenue:

Profit margin = ₦10bn ÷ ₦100bn = 10%

If the margin falls from 15% to 8%, find out why.

3. Earnings per Share (EPS)

EPS tells you how much profit belongs to each ordinary share.

For example, if a company makes ₦10bn profit and has 1 billion shares:

EPS = ₦10 per share.

If EPS has grown from:

₦5 → ₦7 → ₦9 → ₦10

that is generally encouraging.

But don’t look at EPS in isolation. A company can increase EPS because it bought back shares or because of accounting effects. Always understand what caused the change.

4. Cash flow

This is one of the areas beginners often ignore.

A company can report ₦20bn profit but have very little actual cash coming from its operations.

Look at cash flow from operating activities.

For example:

Company C reports:

Profit after tax = ₦20bn
Operating cash flow = ₦25bn

That is generally healthy.

But:

Profit after tax = ₦20bn
Operating cash flow = -₦5bn

I would stop and investigate.

It doesn’t automatically mean the company is bad, but I want to understand why the accounting profit isn’t turning into cash.

A simple question is:

“If this company is making so much profit, where is the cash?”

5. Debt

Check how much the company owes and whether it can comfortably service the debt.

Look at:

– Total debt
– Net debt
– Interest expense
– Debt-to-equity
– Interest coverage

For example:

Company D has ₦100bn debt and ₦500bn equity.

Company E has ₦300bn debt and ₦200bn equity.

Even without knowing everything else, Company E deserves more investigation because its debt burden is much heavier relative to its equity.

However, don’t use one universal debt ratio for every Nigerian company. A bank, cement manufacturer and telecom company have completely different business models.

This is where comparing the company with similar companies in the same sector becomes important.

6. Return on Equity (ROE)

ROE asks:

“How effectively is management using shareholders’ money to generate profit?”

Example:

You invest ₦100m into a business and the company generates ₦20m profit.

ROE is approximately 20%.

If another company consistently generates 25% ROE while competitors generate 10%, that deserves investigation.

But there is a warning: high debt can artificially make ROE look attractive. So always examine ROE together with debt.

7. Dividend history

If you are interested in dividend stocks, don’t simply look for the company paying the biggest dividend today.

Look at:

– Dividend history
– Dividend per share
– Dividend payout ratio
– Profit supporting the dividend
– Cash flow supporting the dividend

Example:

Company F earns ₦10 per share and pays ₦8 dividend.

That’s an 80% payout.

Company G earns ₦10 per share and pays ₦3 dividend.

Company G may actually have more money available to reinvest in expansion.

Neither is automatically better. You need to understand the company’s strategy.

Also remember that a high dividend yield can sometimes happen because the share price has fallen sharply. So high dividend yield does not automatically mean cheap or safe stock.

8. Valuation

This is where you ask:

“Even if this is a good company, am I paying too much for it?”

Important measurements include:

– P/E ratio
– P/B ratio
– Dividend yield
– EV/EBITDA, where appropriate
– Price-to-sales, where appropriate

For example:

Company A earns ₦10 per share and trades at ₦100.

P/E = 10x.

Company B also earns ₦10 per share but trades at ₦200.

P/E = 20x.

Company B is not automatically a bad investment. It may have much stronger growth prospects.

The point is to compare the valuation with:

1. Its own historical valuation
2. Similar companies
3. Its expected growth
4. The prevailing interest-rate environment

9. Management, governance and red flags

Numbers aren’t everything.

Read the annual report and look at:

– Directors
– Major shareholders
– Related-party transactions
– Auditor’s report
– Corporate governance
– Regulatory breaches
– Litigation
– Going-concern warnings
– Qualified audit opinions

If the financial statements contain serious warnings from the auditors, don’t ignore them simply because the share price is rising.

NGX also publishes an X-Compliance Report showing areas such as delinquent financial filers, companies operating below listing standards, companies with free-float deficiencies, breaches of listing rules and enforcement actions.

10. Compare the company against its industry

This is extremely important.

There is no single magic number that says:

“ROE above 15% = buy.”

or

“P/E below 10 = buy.”

The industry matters.

For example, compare three hypothetical companies:

Metric| Bank A| Cement Co. B| Consumer Co. C
Revenue growth| 18%| 12%| 8%
Profit growth| 25%| 15%| 5%
ROE| 22%| 18%| 11%
Debt| Different structure| Moderate| High
P/E| 8x| 12x| 20x

You shouldn’t simply say Bank A is the best because its P/E is 8x.

You should compare Bank A with other banks, Cement Co. B with other industrial/cement companies, and Consumer Co. C with comparable consumer companies.

So where do you get all these figures?

You don’t need to rely on Google alone.

I would use three main sources.

1. The company’s Annual Report

This is your primary document.

Search for:

“Company Name annual report 2025”

Inside it, look for:

– Statement of profit or loss
– Statement of financial position
– Cash flow statement
– Notes to the accounts
– Five-year financial summary
– Dividend information
– Auditor’s report
– Management discussion

2. NGX

NGX publishes listed-company financial information and corporate disclosures. You can find financial statements and company announcements there.

3. SEC Nigeria

The Securities and Exchange Commission is the regulator. SEC also provides investor education resources and regulatory information.

SEC’s rules also require public companies to submit periodic financial information. Its filing calendar states that audited annual reports are due within three months after the accounting year-end, while quarterly unaudited statements are due within 30 days after the quarter.

There is also an important SEC notice that public companies are expected to publish their periodic returns on their websites as well as file them with the Commission and relevant exchanges.

My simple “BUY OR BACK OUT” test

Before I put money into a Nigerian company, I would ask myself:

Business

1. Do I understand how this company makes money?
2. Is revenue growing?
3. Is profit growing?
4. Is EPS growing?
5. Is cash coming from the actual business?

Financial strength
6. Is debt manageable?
7. Can the company pay its interest?
8. Is ROE reasonable compared with competitors?
9. Is the dividend supported by profit and cash?

Valuation
10. Am I paying a reasonable price?
11. How does its P/E compare with competitors?
12. Is the valuation justified by its growth?

Risk
13. Are there major legal/regulatory issues?
14. Does the auditor raise serious concerns?
15. Is management trustworthy?
16. Is the stock sufficiently liquid for me to enter and eventually exit?

Market
17. Is the whole sector performing well or poorly?
18. Is there a major economic factor affecting the business?
19. Is the naira, inflation, interest rate or government policy likely to affect its earnings?

If I cannot answer these questions, I don’t necessarily say the company is bad. I simply say:

“I don’t understand it well enough to invest yet.”

And that is perfectly acceptable.

The biggest mistake a beginner can make is seeing:

+15% 🚀

and thinking:

“I must buy before it goes higher.”

Instead, learn to say:

“Why did it rise? Is the business actually improving? Is the improvement sustainable? And even if the business is excellent, am I paying too much for it?”

That mindset will take you much further than simply following the daily gainers and losers.

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