You've spent nineteen lessons learning to read statements, spot red flags, and calculate ratios for two real Kenyan companies. Today's lesson introduces no new numbers — it just gives you a repeatable order of questions to ask, every time, so your decisions come from evidence instead of a hunch.
Knowing what a margin, an ROE, or a P/E ratio is doesn't automatically stop you from making a bad decision. The gap between "I understand these ratios" and "I made a sound decision" is usually filled by one thing: a habit of wishful thinking — reading the numbers you want to see, and skimming past the ones you don't. A framework is just a fixed checklist you run through in order, every time, so you can't quietly skip the uncomfortable step.
This lesson doesn't introduce a single new figure. It organizes everything from Lessons 1–19 — the three statements, cash vs profit, the red-flag checklist, margins, ROE, leverage, EPS, P/E, and dividend yield — into five questions you ask in sequence.
Start with the income statement, then immediately check it against the cash flow statement. A company can report a profit that's mostly accounting entries rather than cash in the bank. Safaricom's FY2024 profit for the year was KShs 42,658.4 million, while its net cash generated from operating activities was KShs 107,923.6 million — operating cash flow well above accounting profit, because depreciation and amortisation (a non-cash charge) had been subtracted from profit but never actually left the bank. That's a reassuring divergence. The dangerous version of this question runs the other way: profit that looks fine but cash flow that's weak or negative.
Before you get excited about a growth number, run it past the checks from Lesson 14: is profit moving in the same direction as revenue? Is operating cash flow keeping pace with profit growth? Is a big chunk of pre-tax profit coming from a non-cash or non-operating line, like Safaricom's KShs 22,363.2 million hyperinflationary monetary gain in FY2024 (a paper adjustment tied to its Ethiopian operations, not cash the business earned by selling anything)? None of these automatically mean "bad company" — but each one means "investigate before you believe the headline number."
This is where margins and return on equity (ROE) come in. A margin tells you how much of every shilling of revenue turns into profit; ROE tells you how much profit the company generates for every shilling shareholders have invested. Compare a company's own ratios across years before you compare them to a different company — and remember a bank's ROE and a telco's ROE reflect fundamentally different capital structures, not necessarily different quality of management.
Liquidity and leverage checks come next: can current assets cover current liabilities? Is debt-to-equity at a level that's normal for the company's industry? Remember Lesson 12's key point — Equity Group, as a bank, is structurally far more leveraged than Safaricom, and that is normal for banking, not a red flag by itself. The question isn't "does this company have debt," it's "is the debt level typical and serviceable for a company like this."
Valuation questions (P/E, dividend yield) come last, deliberately. A cheap-looking P/E on a company that failed questions 1–4 isn't a bargain — it may be a fair price for a company with real problems. A P/E only becomes useful information once you already understand whether the underlying business is healthy.
Running these five questions out of order is how wishful thinking sneaks in. It's tempting to jump straight to "the P/E looks low, I should buy" — but a low P/E means nothing until you already know whether profit is real cash, whether growth survives scrutiny, whether the company is efficient, and whether the balance sheet can cover its obligations. Cheap price, weak business, is not a bargain. That is the single habit this whole course has been building.
It does not tell you to buy or sell anything, and it does not replace professional financial advice. It also can't cover everything: it says nothing about a company's competitive position, management quality, industry outlook, or macroeconomic risk — all real factors in an investment decision that sit outside financial statements. What it does give you is a way to separate "what the numbers actually say" from "what I'd like them to say," which is the necessary first half of any sound decision, even if it's never the whole of it.
Throughout this course you've seen why: Safaricom's FY2024 profit fell 18.7% even as revenue rose 12.4% (Lesson 1) — a single "profit" headline would have hidden that. Its illustrative P/E of ~22.5x (Lesson 16) mixed a mid-2026 price with a stale, pre-stock-split FY2024 EPS. Every ratio in this course is a lens on one part of the business — never treat any single one as a final verdict.
This is the final lesson in the course. From here, the most useful next step is practice: pick a company you're curious about, pull its real annual report, and run these five questions yourself, in order, before you form an opinion on its share price.
For the practical side of actually buying shares in Kenya — CDSC accounts, stockbrokers, how NSE trading works — see the NSE Digital Academy's "A-Z of Investing in the Stock Market". Before acting on any real investment decision, also consider speaking with a licensed financial adviser.
Something unclear, or want to walk through this five-question framework on a company outside Safaricom and Equity Group? Ask your teacher — that's what these sessions are for.