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Level 3: Advanced

Reading a company's annual report

8 min read · Before you start: Lesson 28 on shares · Updated 31 October 2026

Key terms in this lesson: going concern · Equity · earnings per share · payout ratio (all defined in the glossary)

Listed companies publish an annual report every year, and most people never open one. It is long, and the first thirty pages are photographs and good news. The useful part is the financial statements near the back, and three of them answer most questions. This lesson is a tour of where to look and what the numbers mean.

The four parts that matter

Skipping the glossy front, a report contains the chairman's and management's commentary, the auditor's report, the financial statements, and the notes to the statements. The notes are longer than the statements and usually hold the detail that explains them.

The auditor's report

An independent auditor states whether the statements give a true and fair view. A clean opinion is the common outcome. Language such as a qualified opinion, an emphasis of matter, or a paragraph about going concern signals that the auditor wanted attention drawn to something. It is one page and it is near the front of the financial section.

The balance sheet

Also called the statement of financial position, it is a photograph of one day: what the company owns, what it owes, and the difference.

Assets − Liabilities = Equity

• Current assets are cash and things expected to become cash within a year, such as receivables and inventory.
• Current liabilities are debts due within a year.
• Equity is what belongs to shareholders after everything owed is subtracted. It is also called net assets or book value.

One quick check is the current ratio: current assets divided by current liabilities. A result near or below 1 means short-term debts are close to or larger than the resources available to pay them. What counts as healthy varies a great deal by industry, so comparison works best against the same company's earlier years and against direct competitors.

The income statement

Also called the statement of profit or loss, it covers a period rather than a day: what came in and what went out over twelve months.

• Revenue is total sales before costs.
• Gross profit is revenue minus the direct cost of what was sold.
• Operating profit is after running costs such as salaries, rent and depreciation.
• Profit before tax is after interest on borrowings.
• Profit after tax is what is left, and earnings per share is that figure divided by the shares in issue.

Revenue growing while profit falls points at costs or interest. Profit growing while revenue is flat points at cost-cutting or a one-off gain, which is worth checking in the notes because one-off gains do not repeat.

The cash flow statement

This is the one experienced readers often turn to first, because profit is an accounting measure and cash is not. It splits movements into three:

• Operating activities: cash generated by the actual business.
• Investing activities: cash spent on or received from equipment, property and acquisitions.
• Financing activities: borrowing, repaying, dividends paid and shares issued.

A company reporting a profit while operating cash flow is persistently negative is a pattern worth understanding, and the notes usually explain why. It can be growth in receivables or inventory rather than trouble — but it is a question the report should answer.

A real example: National Flour Mills, 2025

The audited consolidated statements for National Flour Mills Limited (NFM) for the year ended 31 December 2025, published on the Trinidad and Tobago Stock Exchange website, make a useful first report to read, because the headline looks contradictory until you follow it down the page. Figures are in thousands of TT dollars.

Reading down the column

Every line improves until the last two. Revenue rose about 3.3 per cent. Gross profit rose, so the company kept more of each dollar of sales than the year before. Operating profit rose again, so running costs did not eat the gain. Profit before tax rose from 62,899 to 69,016.

Then profit after tax fell, from 44,182 to 41,982, and earnings per share fell with it. The explanation is one line: the income tax expense rose from 18,717 to 27,034, an increase of roughly 8,300 that is larger than the roughly 6,100 gain in pre-tax profit. The chairman's review in the annual report attributes the year-on-year decline entirely to that higher taxation charge.

What the example teaches

• A falling bottom line does not always mean a weakening business. Here the operating performance improved on every measure above the tax line.
• Read down the statement, not just the last number. The story is in which line broke the trend.
• Earnings per share follows profit after tax, so it fell for the same reason, not because anything changed about the shares.
• A one-off and a permanent change look identical in one year's column. Whether a higher tax charge repeats is a question for the notes and for next year's report, and it is the question that matters most to someone valuing the company.

NFM publishes its annual reports and audited statements on its own website and through the exchange. Reading its 2024 and 2026 reports alongside this one shows the trend that a single year cannot.

Five numbers worth pulling out

1. Revenue and profit over three to five years, not one year. Most reports show a comparative column; the five-year summary is often printed near the financial highlights.
2. Earnings per share, and whether the share count has grown, which dilutes each share.
3. Dividend per share and the payout ratio — dividend divided by earnings. A payout above 100 per cent means more was paid out than earned that year.
4. Total debt against equity, as a gauge of how much of the business is funded by borrowing.
5. Operating cash flow against profit after tax.

Where the plain language hides

Several notes repay the time spent. Related party transactions list business done with directors and connected companies. Contingent liabilities describe lawsuits and guarantees that could become real costs. Segment information breaks results down by business line or country, which often shows one division carrying the rest. Subsequent events cover anything significant that happened after the year-end but before publication.

Where to find reports

Listed companies publish annual reports and quarterly results on their own websites, and the TTSE carries disclosures for listed issuers. Reading the same company's report for three consecutive years gives more than reading three different companies once.

Test yourself

Mark this lesson as done

Not financial advice. This lesson is general education only. See our editorial policy and disclaimer.