Annual reports are long, dense and full of photos of board members cutting ribbons. Most investors never open them. That's a shame, because 30 minutes with one can tell you more than a month of share-market Facebook groups.
Here's how I go through one.
1. Start with what the business actually does
Read the overview or chairman's message. Can you explain in one sentence how this company makes money? If you can't, stop there. You're not ready to own it.
2. Compare at least three years of numbers
One year's profit tells you almost nothing. Look at revenue, net profit and total debt over several years. Is it growing steadily, jumping around, or quietly shrinking?
3. Check the cash flow statement
This is the part most people skip, and it's the one I trust most. A company can show a profit on paper while very little cash comes in. If "cash from operations" is weak year after year while profits look great, ask why.
4. Read the notes (at least skim them)
The notes explain the headline numbers: loans, related-party transactions, lawsuits, one-time gains. A big jump in profit sometimes turns out to be the sale of a piece of land, not better business.
5. Read the auditor's report
Usually it's a short page saying everything is fine. If the auditor adds a "qualified opinion" or an "emphasis of matter," read it carefully. That's the auditor raising a concern.
For banks and financial companies
Look at NPL (non-performing loans), capital adequacy and distributable profit. These matter more than the headline profit figure.
Get reports from the company's official website or NEPSE disclosures, and check the date. Last year's report won't show this year's problems.
General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.
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