Every Pakistani listed company files audited financial statements with the Pakistan Stock Exchange (PSX) and the Securities and Exchange Commission of Pakistan (SECP). Understanding these three documents — the income statement, the balance sheet, and the cash flow statement — is the foundation of stock analysis.
1. The Income Statement
The income statement shows what the company earned and spent over a period (quarterly or annual).
Revenue (Net Sales)
The total money received from selling goods or services. For a cement company this is bags of cement; for a bank it is net interest income. Revenue growth is the starting point for any analysis.
Gross Profit
Revenue minus Cost of Sales (COGS). This tells you how much the company makes before paying for administration, distribution, and financing.
Gross Margin = Gross Profit ÷ Revenue × 100
A cement company might have 25% gross margins; a software company might have 70%+. Compare within the same sector.
Operating Profit (EBIT)
Gross Profit minus Selling & Distribution expenses and Administrative expenses. This is the profit from the core business before interest and taxes.
Operating Margin = Operating Profit ÷ Revenue × 100
Finance Costs (Financial Charges)
Interest paid on loans and bonds. A high finance cost relative to operating profit signals dangerous leverage. When SBP raises rates, companies with floating-rate debt see finance costs jump.
Profit Before Tax (PBT)
Operating Profit minus Finance Costs plus Other Income. This is what the company earned before paying the government.
Tax and Profit After Tax (PAT)
PAT is the bottom line. Divide PAT by shares outstanding to get Earnings Per Share (EPS).
EPS = Profit After Tax ÷ Shares Outstanding
EPS is the single most tracked metric for PSX stocks. Year-over-year EPS growth drives share price appreciation.
Dividend Per Share (DPS)
If the company declares a dividend, DPS is the per-share payout. The payout ratio (DPS ÷ EPS × 100) shows how much earnings are returned to shareholders vs reinvested.
2. The Balance Sheet
The balance sheet is a snapshot of what the company owns (assets) and owes (liabilities) at a single point in time. Assets must always equal Liabilities + Equity.
Current Assets
Assets expected to be converted to cash within 12 months: cash and bank balances, trade receivables (money owed by customers), inventory.
Watch for: High trade receivables relative to revenue may indicate slow collections — a serious issue for companies caught in Pakistan's circular debt.
Non-Current Assets
Long-term assets: property, plant & equipment (PP&E), long-term investments, intangibles. Capital expenditure (capex) adds to PP&E and is visible in the cash flow statement.
Current Liabilities
Obligations due within 12 months: trade payables (money owed to suppliers), short-term borrowings.
Current Ratio = Current Assets ÷ Current Liabilities
A current ratio below 1 means current liabilities exceed current assets — a potential liquidity concern.
Long-Term Debt
Bonds, term loans, and lease liabilities due after 12 months.
Debt-to-Equity = Total Debt ÷ Total Equity
A D/E below 0.5× is generally healthy for non-financial companies. Above 2× is high risk in a rising interest rate environment.
Shareholders' Equity
What's left for shareholders after all liabilities are deducted. This is Book Value.
Price-to-Book (P/B) = Share Price ÷ Book Value Per Share
3. The Cash Flow Statement
This is the most honest document. Unlike the income statement (which uses accrual accounting), the cash flow statement shows actual cash moving in and out of the company.
Cash from Operations (CFO)
Cash generated by the core business. CFO should be consistently positive and ideally close to PAT. If PAT is high but CFO is negative, the company is recognising profits it hasn't collected in cash — a red flag.
Cash from Investing (CFI)
Cash spent on buying assets (capex, acquisitions) or received from selling assets. High capex reduces free cash flow. This is where growth companies spend heavily.
Free Cash Flow = CFO − Capex
Free cash flow is the money available to pay dividends, reduce debt, or invest in growth. It is the truest measure of a company's cash generation.
Cash from Financing (CFF)
Cash flows from borrowing (positive) or repaying debt (negative), and from paying dividends (negative) or issuing shares (positive). Consistently high borrowing to fund operations is a warning sign.
Putting it together: a quick checklist
When reviewing a company's annual results, check these five things first:
- Is revenue growing? If not, is profitability improving on lower sales?
- Is EPS growing? Compare the last 3 years to see the trend.
- Is CFO positive and tracking PAT? Large divergences need explanation.
- Is debt increasing faster than equity? This signals deteriorating financial health.
- Is the dividend sustainable? DPS should be comfortably below EPS.
Where to find PSX financial statements
All listed companies must file with the PSX's Financial Data Portal and SECP's EDGAR system. You can also view income statements, balance sheets, and cash flow statements — with charts and ratios — for every PSX company directly on Ticker Analysts.
Ready to apply this? Use the Ticker Analysts Screener to filter stocks by EPS growth, P/E ratio, dividend yield, and more.