By Sylvia Juuko
A number of firms have started issuing their audited annual financial results as at end of December 31, 2012.
Those with a stake in such companies should keenly follow the statutory publication of last year’s annual results to get a clear picture of their state of financial health.
If you are a shareholder in a company listed on the bourse, the annual results and detailed documentation will be availed to you, probably a couple of weeks before the scheduled Annual General Meeting (AGM).
On the other hand, if you missed the published results, most financial institutions are required to display their annual results in all of their branches, availing you an opportunity to have a glimpse of their performance.
Interestingly, some shareholders (who own a stake in companies listed on the stock exchange) are put off or even intimidated by the numerous figures in these annual results.
However, as a shareholder, it’s in your interest to have an idea about the state of affairs of your company.
If you are a novice at this, it helps to get an expert to take you through the different aspects of the audited financial results.
Some of the important aspects of the financial statement to consider include the balance sheet; income statement; statement of changes in shareholders’ equity; statement of cash flows among others.
Any serious shareholder must pay attention to their company’s balance sheet. This will give you an idea of the firm’s financial strength, what it owns, as well as what it owes, as at the end of the year.
Another key component that should be of interest is the income statement because it details the performance of the company during the year, clearly indicating whether the operations fetched a profit or made a loss.
Typically, this interest in a company’s profit is driven by the fact that you are likely to get a dividend if the recommendation/proposal is approved by the board. It is important to remember that even when a company reports a profit, it may decide not to declare dividends to its shareholders but re-invest the money.
While interest in dividends is paramount, you should not ignore other indicators, such as the Earnings Per Share, which is simply derived from dividing the earnings for the year by the number of shares. This number can be used as an indicator of a company’s profitability. A Price-Earnings (PE) ratio can be considered while reviewing the performance of the company in which you have interests.
This is basically the relationship between earnings per share and the market price. A high PE ratio compared to companies in the same industry reflects investor confidence in the company’s ability to produce higher profits in the future.
For every shareholder, scrutinising financial statements furnishes you with information that empowers you to contribute meaningfully during Annual General Meetings (AGMs).
The advantage of owning a stake in a listed company is that you can access the detailed annual report that gives insights into the entire operations of the company, prior to the scheduled AGM. You should take note of the fact that you have a right to seek clarity regarding the contents of the annual report during the AGM.
For those who do not own a stake but are customers of the firms that publish results, you need to arm yourself with information related to the stated performance. Assuming it’s a financial institution, your interest should not be limited to whether the ATM is operating or not.
You would want to transact business with a company that is solid and transparent. It will be in a position to use its financial muscle to innovate and avail you products and services that suit your ever changing needs.
The writer works with Bank of Uganda