Why This Matters
When you buy BAI shares, you are buying a fraction of a business. Is that business healthy? Is it growing? Can it pay its debts? The answers are in the financial statements (demonstrações financeiras) — three interconnected reports that every public company must publish. Reading them is not just for accountants — it is an essential skill for any stock investor.
The Three Financial Statements
1. Income Statement (Demonstração de Resultados)
Also called the profit and loss statement (P&L), this shows what the company earned and spent over a period (usually quarterly or annually).
Key lines:
- Revenue (Receitas): Total income from the business. For a bank, this is primarily net interest income plus fee income.
- Operating expenses (Custos Operacionais): Salaries, rent, technology, marketing — the cost of running the business.
- Operating profit (Resultado Operacional): Revenue minus operating expenses. This is the profit from core business activities.
- Net profit (Resultado Líquido): The bottom line after all expenses, taxes, and extraordinary items. This is what is available for dividends or reinvestment.
What to look for:
- Is revenue growing year over year?
- Are profit margins stable or improving?
- Is net profit growing faster than revenue (showing improving efficiency)?
2. Balance Sheet (Balanço)
A snapshot of what the company owns and owes at a specific point in time. It follows the fundamental equation: Assets = Liabilities + Shareholders’ Equity.
Key lines:
- Assets (Ativos): What the company owns — cash, loans (for banks), investments, property, equipment.
- Liabilities (Passivos): What the company owes — customer deposits (for banks), borrowed money, accounts payable.
- Shareholders’ Equity (Capital Próprio): The residual value — assets minus liabilities. This is theoretically what shareholders would receive if the company sold everything and paid all debts.
What to look for:
- Is equity growing? (Sign of retained earnings being reinvested)
- What is the debt-to-equity ratio? (Too much debt increases risk)
- For banks: what is the loan-to-deposit ratio? (Indicates lending prudence)
3. Cash Flow Statement (Demonstração dos Fluxos de Caixa)
Shows how cash actually moved in and out of the business. Profits can be manipulated through accounting choices; cash flow is harder to fake.
Three sections:
- Operating cash flow: Cash generated from core business. Should be positive and ideally greater than net profit.
- Investing cash flow: Cash spent on long-term assets (buildings, technology) or received from selling them. Usually negative (the company is investing).
- Financing cash flow: Cash from issuing shares/bonds or paying dividends/repaying debt.
What to look for:
- Is operating cash flow positive and growing?
- Is the company investing in growth (negative investing cash flow)?
- Is it generating enough cash to cover dividends?
Key Financial Ratios
Ratios allow you to compare companies of different sizes and across different time periods:
| Ratio | Formula | What It Tells You | Good Range (Banks) |
|---|---|---|---|
| Return on Equity (ROE) | Net Profit / Equity | How efficiently the company uses shareholder money | 15-25% |
| Return on Assets (ROA) | Net Profit / Total Assets | How efficiently all assets generate profit | 1.5-3% |
| Cost-to-Income | Operating Expenses / Revenue | Operational efficiency | 40-60% |
| Price-to-Earnings (P/E) | Share Price / EPS | Market valuation relative to profits | 3-8x (Angola) |
| Dividend Payout | Dividends / Net Profit | Portion of profits paid to shareholders | 30-60% |
Worked Example: Reading BAI’s Financials
Let us analyze BAI using simplified financial data:
Income Statement (Annual)
| Line | Amount (Kz Billions) |
|---|---|
| Net interest income | 385 |
| Fee income | 95 |
| Total revenue | 480 |
| Operating expenses | (210) |
| Provisions for bad loans | (45) |
| Operating profit | 225 |
| Taxes | (55) |
| Net profit | 170 |
Key ratios from income statement:
- Revenue growth (YoY): +18% — strong growth
- Cost-to-income: 210/480 = 43.8% — efficient
- Net profit margin: 170/480 = 35.4% — healthy
Balance Sheet
| Line | Amount (Kz Billions) |
|---|---|
| Total assets | 8,500 |
| Total liabilities | 7,400 |
| Shareholders’ equity | 1,100 |
Key ratios from balance sheet:
- ROE: 170/1,100 = 15.5% — solid return on equity
- ROA: 170/8,500 = 2.0% — good for a bank
- Equity ratio: 1,100/8,500 = 12.9% — well-capitalized
Valuation (at Kz 100,500 per share):
- Earnings per share (EPS): Kz 280 (approximate)
- P/E ratio: 1,250/280 = 4.5x
- Book value per share: ~Kz 1,400
- Price-to-book: 100,500/85,000 = 1.18x
Interpretation: BAI is a profitable, well-capitalized bank growing at 18% annually, trading below book value at 4.5x earnings. The low valuation reflects Angola country risk rather than company-specific problems. For a long-term investor, these metrics suggest good value — but the investor must be comfortable with sovereign and currency risk.
Where to Find Financial Statements
- BODIVA website — Listed companies must publish annual and interim results
- CMC filings — The securities regulator maintains a database of company filings
- Company websites — Annual reports (Relatório e Contas) are typically published in the investor relations section
- Angola X company profiles — We compile and analyze key financial data for each listed company
Key Takeaways
- Three statements tell the full story: income statement (profitability), balance sheet (financial health), cash flow (cash reality)
- Focus on trends over time, not single-period snapshots — is the company improving?
- Key ratios for Angolan companies: ROE (15-25% target), cost-to-income (under 60%), P/E (compare across listed peers)
- Cash flow is harder to manipulate than reported profits — always check operating cash flow
- Financial statements are available from BODIVA, CMC, and company websites
- You do not need to be an accountant — understanding the key lines and ratios is sufficient for informed investing
Common Mistakes
Looking at only one statement — A company can show growing profits while burning cash. Always check all three statements together.
Ignoring context — Angola’s banking sector operates differently from European or American banks. High interest margins (common in Angola due to BNA rates) do not mean the same thing as in low-rate economies.
Trusting numbers blindly — Financial statements are prepared by management and audited by external auditors. While generally reliable, always apply common sense — if something looks too good to be true, investigate further.
What’s Next — Level 2
Congratulations! You have completed Level 1 — Angola Markets Basics. You can now open a securities account, understand how bonds and stocks work, compare yields, trade on BODIVA, understand your tax obligations, and read company financial statements.
Level 2 takes your skills further into active investing — portfolio construction, fundamental analysis, risk management, and sector-specific strategies for Angola’s market.
Next Level: Level 2 — Active Investing: Growing Your Wealth
Read detailed company profiles on the BODIVA Equities Dashboard. Analyze the BAI Profile using the concepts from this lesson.