How to Understand a Company Before You Invest
Ten plain-language questions and the basic financial statement terms every beginner investor should know, with a fictional worked example. Before you look at a single number, you should be able to describe the business. If you cannot answer the first three questions below in a sentence or two each, you are not ready to buy, however attractive the price looks.
By Luther King · 17 October 2026
Ten questions to answer
What does this company actually do?
Who are its customers?
How does it make money?
Is revenue growing?
Is profit growing?
Is the business profitable at all?
How much debt does it have?
Is it generating cash, not just accounting profit?
Does it pay dividends?
What could go wrong?
Where the answers come from
Listed companies must publish financial information. Under the GSE's February 2026 rules, Main Market issuers submit quarterly reports and GAX issuers submit half-year reports, alongside audited annual accounts. Check the period covered, the publication date and the auditor's opinion. A requirement to publish does not guarantee timely publication.
The building blocks
Revenue: money brought in from selling goods or services, before costs. A manufacturer reports sales revenue. A bank splits its income into interest income, interest expense, net interest income and other income, so compare like with like.
Gross profit: revenue minus the direct cost of what was sold.
Operating profit: gross profit less operating costs such as salaries, rent and marketing, before interest and tax. Presentation varies, and a bank will not use the same structure.
Net profit: what is left after every cost, including interest and tax. It is the "bottom line".
Earnings per share (EPS): profit attributable to ordinary shareholders divided by the weighted-average number of ordinary shares in the period. Use the company's published basic and diluted EPS.
Assets, liabilities and equity: assets are what a company owns, liabilities what it owes, and equity is the accounting residual. Equity is not the market value of the shares.
Debt: borrowed money, usually repaid with interest. Some debt is normal. Too much relative to earnings is a warning sign.
Cash flow: the real movement of cash, which can differ from accounting profit.
A fictional example: Akwaaba Foods PLC
Akwaaba Foods is invented purely for teaching. Assume constant shares, that all profit belongs to ordinary shareholders, and no dilution.
Line item | Unit | Year 1 | Year 2 |
|---|---|---|---|
Revenue | GHS thousand | 48,000 | 56,000 |
Gross profit | GHS thousand | 19,200 | 23,500 |
Operating profit | GHS thousand | 9,600 | 12,300 |
Net profit | GHS thousand | 6,200 | 8,100 |
Weighted-average ordinary shares | shares | 40,000,000 | 40,000,000 |
EPS | GHS per share | 0.1550 | 0.2025 |
Total debt | GHS thousand | 14,000 | 15,500 |
Operating cash flow | GHS thousand | 7,900 | 9,700 |
Revenue grew 16.67% and net profit 30.65%. Net profit margin rose from 12.92% to 14.46%. That fits with better profitability, but the cause needs investigating, because costs, tax, financing and one-off items can all play a part. Operating cash flow was above net profit both years (1.27 times, then 1.20 times), which is encouraging, but the ratio fell. None of this says whether the share price is fair. That is the subject of Part 7.
What could go wrong?
Every company faces risks: competition, regulation, currency swings, commodity prices, changing customers, or a key client leaving. Reading the risk section of a company's annual report is part of understanding it, not an optional extra.
The short version: describe the business first, read the statements second, and price comes third.
Next in the series: Part 7, The Numbers That Matter.
This article is for education only. It is not personalised investment advice, and it is not financial, tax or legal advice. Investing involves risk, including the possible loss of money, and past performance does not guarantee future results. Rules, charges and data change, so confirm current details with the Ghana Stock Exchange, the Securities and Exchange Commission (Ghana), the Central Securities Depository (Ghana) and your own licensed broker before acting. GSE Monitor is a market-information and portfolio-tracking product, and buying or selling shares still requires an account with a licensed broker.
