How to Read a Company’s Financial Statements: A DSE Investor’s Guide
Share prices move every minute, but a company’s real value is built quarter by quarter in its financial statements. If you can read those numbers, you can tell the difference between a business that is growing and a share that is only being talked up. This guide explains, in plain language, how a Dhaka Stock Exchange (DSE) investor can find, read and check a listed company’s financial statements.
If you are completely new to the market, start with our basics of the Bangladesh stock market first, then come back here.
Where to find a company’s financial statements
Listed companies in Bangladesh must publish their financial results regularly. You can find them in a few places:
- The company’s own website. Look for an “Investor Relations” or “Financial Reports” section. Most companies post annual reports and quarterly reports there as PDFs.
- The DSE website company page. Search the company’s trading code on the DSE website. The company page shows key figures such as EPS, NAV per share, dividend history and category, plus links to financial statements.
- Price-sensitive information (PSI). When a company’s board approves quarterly results or declares a dividend, it must disclose this as price-sensitive information. These announcements appear in the DSE news section and often give EPS, NAV per share and NOCFPS in a few lines.
- Annual reports. The full annual report contains the audited financial statements, the auditor’s report, notes to the accounts and the directors’ report. This is the most complete document you will get.
Companies publish four sets of results each financial year:
- Q1 (first quarter, unaudited)
- Half-yearly (first six months, unaudited)
- Q3 (first nine months, unaudited)
- Audited annual (full year, checked by an external auditor)
Quarterly numbers are useful for spotting trends early, but they are not audited. Give the most weight to the audited annual statements, and always compare a quarter with the same quarter of the previous year, not with the previous quarter, because many businesses are seasonal.
The three financial statements in plain language
1. Income statement: did the company make money?
The income statement (also called the profit and loss statement, or statement of profit or loss and other comprehensive income) shows what the company earned and spent over a period. Read it from top to bottom:
- Revenue (turnover or sales): money earned from selling goods or services.
- Gross profit: revenue minus the direct cost of making those goods or services. It shows whether the core product is profitable.
- Operating profit: gross profit minus running costs such as salaries, rent, distribution and administration. It shows how well the business itself is run.
- Net profit (profit after tax): what is left after interest, other income and tax. This is the profit that belongs to shareholders.
- EPS (earnings per share): net profit divided by the number of shares. It tells you how much profit each share earned.
2. Balance sheet: what does the company own and owe?
The balance sheet, now formally called the statement of financial position, is a snapshot on one date. It always balances: assets = liabilities + equity.
- Assets: what the company owns, such as land, factories, machinery, inventory, receivables (money customers still owe) and cash.
- Liabilities: what the company owes, such as bank loans, supplier bills and tax payable.
- Equity: what is left for shareholders after all liabilities are paid. Also called shareholders’ equity or net assets.
- NAV per share (net asset value per share): equity divided by the number of shares.
- Debt: short-term and long-term borrowings. Debt is not bad in itself, but too much of it makes a company fragile when sales slow or interest rates rise.
3. Cash flow statement: did real cash come in?
Profit is an accounting figure; cash is what pays salaries, loans and dividends. The cash flow statement shows where cash actually came from and where it went.
- Operating cash flow: cash generated by the day-to-day business. A healthy company usually produces operating cash flow close to, or above, its net profit over time.
- NOCFPS (net operating cash flow per share): operating cash flow divided by the number of shares. DSE-listed companies report NOCFPS alongside EPS and NAV per share, which makes a quick comparison easy.
- Capex (capital expenditure): cash spent on new machinery, buildings and other long-term assets. You will find it under investing activities.
- Free cash flow: operating cash flow minus capex. This is the cash genuinely available for dividends, paying down debt or growth.
Key ratios, with a worked example
Ratios turn raw numbers into something you can compare across years and across companies. Let us use a hypothetical company, “ABC Ltd”, with round numbers. It has 10 crore shares and its share price is Tk 60.
| Item (ABC Ltd, hypothetical) | Amount |
|---|---|
| Revenue | Tk 500 crore |
| Gross profit | Tk 150 crore |
| Operating profit | Tk 80 crore |
| Net profit | Tk 50 crore |
| Shareholders’ equity | Tk 400 crore |
| Total debt | Tk 200 crore |
| Current assets / current liabilities | Tk 300 crore / Tk 200 crore |
| Operating cash flow | Tk 60 crore |
| Capex | Tk 25 crore |
| Cash dividend declared | Tk 2 per share |
From these numbers: EPS = Tk 50 crore ÷ 10 crore shares = Tk 5. NAV per share = Tk 400 crore ÷ 10 crore = Tk 40. NOCFPS = Tk 60 crore ÷ 10 crore = Tk 6. Free cash flow = Tk 60 crore − Tk 25 crore = Tk 35 crore.
| Ratio | Formula | ABC Ltd | What it tells you |
|---|---|---|---|
| P/E | Share price ÷ EPS | 60 ÷ 5 = 12 | You pay Tk 12 for every Tk 1 of annual profit |
| P/B | Share price ÷ NAV per share | 60 ÷ 40 = 1.5 | Price is 1.5 times book value |
| ROE | Net profit ÷ equity | 50 ÷ 400 = 12.5% | Profit earned on shareholders’ money |
| Debt-to-equity | Total debt ÷ equity | 200 ÷ 400 = 0.5 | Tk 0.50 of debt for every Tk 1 of equity |
| Current ratio | Current assets ÷ current liabilities | 300 ÷ 200 = 1.5 | Ability to pay bills due within a year |
| Profit margin (net) | Net profit ÷ revenue | 50 ÷ 500 = 10% | Tk 10 profit from every Tk 100 of sales |
| Dividend payout | Dividend per share ÷ EPS | 2 ÷ 5 = 40% | Share of profit paid out as cash |
| Dividend yield | Dividend per share ÷ share price | 2 ÷ 60 = 3.3% | Cash return on the price you pay |
Remember that the dividend in Bangladesh is usually declared as a percentage of face value. A 20% cash dividend on a Tk 10 face value share is Tk 2 per share, which is what we used above.
No single ratio is “good” or “bad” on its own. A P/E of 12 may be cheap for a fast-growing company and expensive for a shrinking one. Compare ratios with the company’s own history and with similar companies in the same sector.
Red flags to watch for
Numbers can look attractive on the surface. These warning signs suggest you should dig deeper or stay away:
- Profit growing but operating cash flow negative. If EPS keeps rising while NOCFPS stays negative year after year, the profit may not be turning into cash. Ask where the money is going.
- Auditor’s qualified opinion or emphasis of matter. Always read the auditor’s report in the annual report. A qualified opinion means the auditor disagrees with something or could not verify it. An emphasis of matter paragraph highlights an issue the auditor thinks you should notice, such as going-concern doubts.
- Large related-party transactions. Big sales, purchases, loans or advances to companies owned by directors or sponsors are disclosed in the notes. They can move money out of the listed company at the expense of minority shareholders.
- Frequent stock dividends but no cash dividend. Bonus shares increase the number of shares but do not put cash in your hand. A company that keeps issuing stock dividends while never paying cash may be short of cash.
- Rising receivables. If money owed by customers grows much faster than sales, the company may be booking sales it cannot collect.
- One-off gains inflating EPS. Profit from selling land, revaluation gains or a one-time settlement can boost EPS for one year. Check the notes and look at operating profit, which strips out most of these items.
- Late AGMs or a downgrade to the Z category. Companies that fail to hold their AGM on time or fail to pay declared dividends can be moved to the Z category. Delays in publishing results are often a sign of deeper problems.
A 10-point checklist before you buy
- Have I read the latest audited annual report, not just a news headline?
- Is revenue growing steadily over the last three to five years?
- Are gross, operating and net profit margins stable or improving?
- Is operating cash flow (NOCFPS) positive and broadly in line with EPS?
- Is debt-to-equity at a level the business can comfortably service?
- Is the current ratio comfortable, so the company can pay its short-term bills?
- Is ROE reasonable compared with similar companies in the sector?
- Does the company pay regular cash dividends, and is the payout sustainable?
- Is the auditor’s opinion clean, with no qualification or worrying emphasis of matter?
- Are P/E and P/B reasonable compared with the company’s history and its peers?
If you cannot answer “yes” to most of these questions, take more time before you invest. Patience is often the best protection a retail investor has.
Start investing with knowledge
Reading financial statements takes practice. Start with one company you know well, open its last two annual reports side by side and work through the ratios above. After a few companies, the numbers will start telling you a story.
When you are ready to put your research to work, you can open your BO account online with Mika Securities and trade DSE shares through the Amar Biniyog app. Mika Securities Ltd has been a DSE member since 2005 (DSE TREC No. 215).
This article is for general education only and is not investment advice. Investment carries risk; past performance does not guarantee future returns.