annual report
An annual report is the yearly document a listed company publishes about itself, and the most useful parts are the ones nobody reads.
In plain English
An annual report arrives looking like a magazine. Photographs of smiling staff at work. A chairman's letter about resilience. Charts that curve upward.
That part is marketing, and it is written to be read.
The parts that matter are written because the law requires them, and they are frequently where the truth is hiding in plain sight.
Read the auditor's report, and specifically look for any qualification or any note about the company's ability to continue as a going concern. Read the notes to the accounts, which is where contingent liabilities, related party transactions and pending litigation live. Read the directors' remuneration, and compare it with what the company actually earned. Read the cash flow statement, which is far harder to dress up than the profit figure.
For a Nigerian investor this is the single most valuable free document available, and hardly anybody opens it. People buy shares on a tip from a friend, in a company whose accounts they have never seen, and are then astonished.
You would not buy a shop without looking at its books. A share is a piece of a business.
You are considering a company's shares. The chairman's statement is glowing. The notes to the accounts disclose a substantial pending lawsuit and heavy related party transactions. Both documents are in the same file, and only one of them was written to be read.
Questions people ask
Where do I find annual reports?
On the company's own website and through the NGX. They are free, they are public, and almost nobody reads them.
What should I read first?
The auditor's report, the cash flow statement, and the notes to the accounts. In that order, and before any of the photographs.
What are related party transactions?
Business done with directors, their families or connected companies. Disclosed in the notes, and worth reading very carefully.
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