Financial Statements

The three core reports that reveal a company's financial health – essential for stock analysis and investment decisions on the PSX.

Why Financial Statements Matter

When you invest in a company listed on the Pakistan Stock Exchange (PSX), you are buying a piece of that business. Financial statements help you answer critical questions:

• Is the company profitable?
• Does it have too much debt?
• Can it pay its bills?
• Is it generating cash or just accounting profits?

Every publicly traded company in Pakistan (under SECP regulations) must publish audited financial statements quarterly and annually. These are available on the PSX website and company investor relations pages.

The Three Main Financial Statements

1. Balance Sheet – Financial Position at a Point in Time

The balance sheet summarizes what a company owns (assets) and what it owes (liabilities), with the difference being shareholders' equity. The accounting equation is:

Assets – Resources owned by the company (cash, inventory, property, equipment, receivables).
Liabilities – Debts and obligations (bank loans, accounts payable, taxes due).
Equity – Owners' residual interest (share capital + retained earnings).

PSX Example: A cement company's balance sheet may show large assets in "Property, Plant & Equipment" (factories), liabilities as long‑term loans from banks, and equity contributed by shareholders.

2. Income Statement (Profit & Loss Statement) – Performance Over Time

The income statement shows how much money a company earned (revenue) and spent (expenses) over a period – quarterly or annually. The bottom line is net profit (or loss).

• Revenue – Sales from goods/services.
• Cost of Goods Sold (COGS) – Direct costs to produce revenue.
• Gross Profit = Revenue – COGS.
• Operating Expenses – Selling, general, administrative costs, etc.
• Operating Profit = Gross Profit – Operating Expenses.
• Net Profit = Operating Profit – Interest – Taxes + Other income/expenses.

PSX Example: A bank's income statement shows interest income from loans, interest expense on deposits, and administrative costs. Investors focus on net profit growth over several years.

3. Cash Flow Statement – Real Cash Movements

Unlike the income statement (which includes non‑cash items like depreciation), the cash flow statement tracks actual cash coming in and going out. It is divided into three sections:

• Operating Activities: Cash generated from core business operations (sales, payments to suppliers, salaries).
• Investing Activities: Cash used for buying/selling assets (property, equipment, investments).
• Financing Activities: Cash from issuing shares, borrowing, or paying dividends.

Why it matters: A company can report high net profit but still have negative operating cash flow (e.g., if customers don't pay). This is a red flag.

Quick Comparison Table

How to Access Financial Statements for PSX Companies

1. Visit the PSX website (psx.com.pk) → "Company Information" → Search for the company name.
2. Look for "Financial Reports" or "Annual Reports". Most companies publish PDFs.
3. You can also use financial data portals like SCtrade, Investo.pk, or broker research reports.

Common Ratios Derived from Financial Statements

These ratios help compare companies within the same industry. (See our Ratio Analysis page for deeper explanation.)

• Current Ratio = Current Assets / Current Liabilities – measures short‑term liquidity.
• Debt-to-Equity = Total Liabilities / Shareholders' Equity – measures leverage.
• Return on Equity (ROE) = Net Profit / Shareholders' Equity – profitability per rupee of equity.
• Price-to-Earnings (P/E) = Share Price / Earnings Per Share – valuation metric.