How to Read a PSX Company's Financial Statements

Every company listed on the Pakistan Stock Exchange must publish its accounts — condensed figures every quarter, a full audited set once a year. They are free, they are public, and almost nobody who trades the stock has read them. The tip in your group chat was not built on them. That is exactly why reading them is worth your time: it is the cheapest edge available on the PSX, because so few people bother to collect it.

You do not need an accounting qualification. You need to know what the two main statements say, where the traps sit, and how to turn four lines of a report into the ratios everyone quotes without ever checking.

Where the statements actually live

Three places, all free:

• The company's own website. Every listed company keeps an investor relations section with annual and quarterly reports as PDFs, usually going back years.
• The PSX data portal. Results reach the exchange's announcements system before they reach anywhere else. On results day, the condensed accounts are there hours before any news article summarises them — badly.
• The annual report itself. The quarterly accounts are condensed and unaudited. The annual report is audited, and it carries the notes to the accounts, which is where most of the real information lives. If you read one document per company per year, make it this one.

A useful habit: ignore the first thirty pages. The chairman's review and the glossy photography are marketing. The statements and their notes start where the design budget runs out.

The income statement, top to bottom

We will use an invented company — call it Sundar Cement. Every figure below is a round number chosen for easy arithmetic, not a disguised real firm. The structure, however, is exactly what you will find in any PSX industrial company's accounts.

• Revenue: Rs 50 billion. What customers paid for cement, net of sales tax.
• Cost of sales: Rs 35 billion. Coal, gas, power, limestone, wages at the plant.
• Gross profit: Rs 15 billion — a gross margin of 30%. This is the number that tells you whether the underlying trade is any good, before overheads and financing muddy it.
• Selling and administrative expenses: Rs 5 billion, leaving operating profit of Rs 10 billion. The business, as a business, makes ten billion rupees.
• Finance cost: Rs 4 billion. Pause here.

In most markets, finance cost is a footnote. In Pakistan it is frequently the whole story. The policy rate peaked at 22% in 2023-24, and corporate borrowing is priced off KIBOR, so a leveraged company can watch a perfectly healthy operating profit vanish into interest. Sundar pays Rs 4 billion on Rs 20 billion of borrowings — an average of 20%, which is what a KIBOR-plus-spread loan cost near the peak. Forty percent of its operating profit goes to banks before shareholders see a rupee. This is why debt-light companies commanded such a premium through the tightening cycle, and why the first thing to check on any PSX industrial is not the profit but the borrowing that sits beneath it.

• Profit before tax: Rs 6 billion. Taxation: Rs 2 billion — an effective rate of 33%. Corporate tax plus super tax has been reworked too often to quote a current figure confidently; take the rate from the company's own tax note and verify anything current with the FBR.
• Net profit: Rs 4 billion. This is the line everything downstream — EPS, P/E, ROE — is built on.

The balance sheet: a photograph, not a film

The income statement covers a year. The balance sheet is a snapshot of a single day, in three blocks: what the company owns (assets), what it owes (liabilities), and what is left over for shareholders (equity). Assets always equal liabilities plus equity — not as a coincidence but by construction.

Sundar's snapshot: total assets of Rs 60 billion — plant, land, inventory, Rs 6 billion of trade receivables, Rs 2 billion of cash. Liabilities of Rs 35 billion — Rs 10 billion of long-term debt, Rs 10 billion of short-term borrowings, the rest trade payables and provisions. Equity of Rs 25 billion.

Two things deserve your attention before anything else. First, debt against equity: Rs 20 billion of borrowings on Rs 25 billion of equity, or 0.8 times. Not fatal — but you have already seen what it costs on the income statement.

Second, receivables quality. Sundar is owed Rs 6 billion against Rs 50 billion of annual sales — about 44 days of revenue, which is unremarkable for an industrial. Now look at the energy sector, where this single line becomes the most important item in the entire report. OGDC and PPL carry receivables worth years of revenue, because their main customer — the state's power chain — does not pay on time. That is circular debt, and it means reported profit and received cash are very different things. Open the receivables note on OGDC and you will see profit that was booked, taxed, and never banked. Profit you cannot bank is a claim, not cash, and the balance sheet is where claims pile up.

Now do the arithmetic yourself

Say Sundar has 500 million shares outstanding, trades at Rs 64 (invented, like everything else here), and paid Rs 2 billion in dividends this year. Every ratio on a stock page falls out of numbers you now have:

What the ratios mean, and how much weight each deserves, is covered in how to read a stock page. What the report adds is context the stock page cannot show. A 16% ROE looks respectable — until you remember that in 2023-24 a Treasury bill paid 22% risk-free. A business earning less on shareholders' money than a government instrument, while carrying cement-industry risk, is not obviously a business worth owning at any premium to book value. That mismatch is a large part of why the whole market traded at single-digit P/Es through the tightening cycle. Cheap relative to history is not the same as cheap relative to the alternative sitting in a bank.

The 6.25% yield deserves the same scrutiny: it is covered twice by earnings here, which is healthy, but yield alone tells you nothing about whether it will be paid again — the dividend versus growth question has its own traps.

Banks read differently — do not use this checklist on them

Run Sundar's checklist over HBL or MEBL and every conclusion will be wrong. A bank's raw material is deposits: the interest it pays depositors is its cost of sales, not a sign of distress. "Finance cost" being enormous is the business working as designed. There is no gross margin; the equivalent is the net interest margin — the spread between what the bank earns on loans and government paper and what it pays for deposits. Debt-to-equity is meaningless, because a bank is leverage by definition; the regulator watches capital adequacy instead. The checks that matter — deposit growth, the advances-to-deposit ratio, non-performing loans, spreads — are a different literacy, covered in our banking sector analysis. The rule is simple: sector first, checklist second.

Red flags the ratios will not show you

1. One-off gains inflating EPS. An asset sale, a revaluation, an exchange gain — all land in "other income" and flow straight into EPS. A company earning Rs 8 per share, of which Rs 5 came from selling land, is a Rs 3 company wearing a Rs 8 mask. Always open the other income note and ask: does this repeat next year?
2. Receivables growing faster than revenue. Sales up 10%, receivables up 60% means the company is booking revenue it has not collected — customers in trouble, channel stuffing, or accounting optimism. The ratio of receivables to sales should be roughly stable; watch its trend across three years, not one.
3. Dividends funded by borrowing. Compare dividends paid (cash flow statement) with operating cash flow. If the dividend exceeds the cash the business generated while short-term borrowings rise, the company is borrowing at KIBOR to hand you "income". That feels like yield and is actually the balance sheet being liquidated in slow motion.
4. Profit without cash. Net profit rising while operating cash flow falls, for more than a year running, means accruals are doing the heavy lifting. Cash is much harder to imagine into existence than profit.
5. The auditor's page. Read the opinion before the highlights. A qualified opinion or an emphasis-of-matter paragraph about going concern is the loudest warning a company will ever publish about itself, and it is routinely ignored because it appears on page 90.

The homework that builds the skill

Pick one company — one you own, or one surfaced by the screener — download its latest annual report, and reproduce the six calculations in the table above by hand from the statements. Then compare your answers with the stock page. They will sometimes disagree, and the disagreement is the lesson: the page may use trailing twelve-month earnings while you used the last full year, or a bonus share issue changed the share count mid-year and every per-share figure shifted without the business changing at all. Working out why two EPS figures differ teaches more balance-sheet literacy than any tutorial, because it forces you to see that the forty numbers on a stock page are outputs — and the report is the machine that produces them. Nobody who can walk from one to the other can be sold a "cheap" stock by screenshot again.