Need for SEC to Mandate Listed Companies to Disclose Adjusted Profit & EBITDA After Exceptional Items
Simon Obasi (ACA)
Deloitte Private Equity M&A Manager || Ex-KPMG || Quantic EMBA60 || Financial Reporting || Controllership
I wish that Securities and Exchange Commission, Nigeria mandates Nigerian listed companies to provide intels about exceptional items, adjusted profit & EBITDA before and after exceptional items.
A few days ago, I Nigerian bank released its result and people went on jubilation. I didn't see why.
The bank's Q2-23 (3 month) profit eclipsed its FY22 (12 months) profit. Surely, that will ordinarily be a good reason to jubilate. But then, I would have wanted people to ask - Dear Bank, what's the secret that you made more profit this 3 months than 12 months of last year?
Some people said it was the windfall from the new FX regime. But no one explained that. Was the bank able to sell FX that delivers over N200 billion profit (higher than last year's full year profit)? Or was it repricing of FX balances in the books?
All the bank told us was that a N236 billion windfall in that quarter was fair value gains. And then you ask, from where? The closest explanation is that it could be from certain assets held at fair value, and I bet that you will struggle to find those ..sure not much from trading assets nor from debt securities (due to size of both). Maybe it was from the derivative assets - they didn't tell us.
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So why is it necessary for listed entities to tell us what exceptional items they reported? Because some of the investors in our clime are not sophisticated enough to pick financial statements and try to go around/unpack the numbers. Most just want to see big profit.
Hence, to assist this group of investors, more information that separates core business profit from windfall profit needs to be disclosed in the financial statements.
This is not to discount the stellar revenue growth of the bank in that quarter. But from all I saw, if you discount these supposed exceptional items (FX gain/loss and FV gains) and compare profitability, you will be shocked that the operating profit in Q2-23 drops from N150B to N19.8B vs N22B in Q2-22 (adjusted).
The point? Listed companies need to provide the public with more information about their performance to enable them make informed decision.
What do you think?
AI + Finance Researcher
1 年Seriously! Do you mean investment bankers and fund managers who are the major participants in Nigeria capital market can’t unpack EBITDA of a company they are valuing and recommending to distill and pick up the key drivers in the numbers? If this is true then those fund managers and investment bankers in Nigeria have to go and study finance well. Or, I recommend them to go and write at least CFA level I exams. Understanding and interpreting a company’s numbers is the first step to investing in it. And for this purpose, I think the information being disclosed by listed companies in Nigeria is sufficient. Because no matter how much they disclose, it won’t make up for the knowledge and skill gap of the market participants. Market participants should upskill to bridge the knowledge gaps in order to effectively use the market information being provided by companies.