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Investing may be a good way to increase profits and achieve financial goals. However, it is necessary to make the right investment decisions and avoid risks, such as buying and selling stocks based on misleading information and rumors, or investing all your money in one type of investment. The main objective of investing is to raise capital.

In this section, you will learn about investments, investment strategies and how to evaluate the performance of listed companies. You will also come across investment risks and how to reduce these risks, how to make investment decisions, avoid mistakes and how to take advantage of the opportunities and benefits of investment in general.

General Overview on Investment

Why do we invest?

Over time, good investment can help in accumulating funds that an investor may need. For example, through investing you can:

  • Grow wealth.
  • Save income.
  • Achieve short and medium term goals, i.e. buying a new computer or a new car, etc.
  • Achieve long term goals, i.e. buying a new house or securing your future after retirement.

Financial instruments available in the Saudi Capital Market


Shares are investments that give their holder ownership in a specific company. An individual becomes a “shareholder” in a company once he/she owns shares in that company. A shareholder is qualified to share the financial success or failure of a company. An investor chooses to invest in stocks of a certain company when a future price increase is predicted, or distributing dividends on shareholders is expected. Shares that are expected to increase in value by time are called “Growth Stocks”, whereas shares distribute regular profits to its shareholders are known as “Dividend Stocks”.

Investors can invest in shares in both main market and Nomu- Parallel market. Nomu is a parallel equity market with lighter listing requirements that serves as an alternative platform for companies to go public. Investment in the main market is available to all types of investors while in Nomu is restricted to qualified investors.

Mutual funds

Mutual funds are investment portfolios managed by a fund manager that aims to provide an opportunity for investors to participate collectively in the fund’s profits in exchange for specific fees.

One of the advantages of mutual funds is that they are managed by wealth management specialist.

Sukuk and Bonds

Sukuk and bonds are funding instruments used by governments, companies and institutions to provide the necessary liquidity to fund their projects at a relatively low cost. Also, sukuk and bonds protect investors’ portfolios because they provide lower-risk investment tools with relatively safe periodic returns.

Exchange Traded Funds (ETFs)

ETFs are investment funds made up of basket of shares of listed companies. ETFs are traded on the Exchange just like equities during trading hours. ETFs are mainly characterized by their transparency as these funds follow the movement of indices and match its investment with the components of these indices, hence, makes it easier for owners to know the performance of these funds through the performance of the indices that it follows or emulates.

Real Estate Investment Traded Funds (REITs)

Real Estate Investment Traded Funds, or REITs, are financial instruments that allow all types of investors to obtain investment exposure to the Real Estate Market. This is achieved through collective ownership of constructed developed real estate qualified to generate periodic and rental income. REITs are traded on the Exchange just like equities during trading hours.

Comparison between financial instruments available in the Saudi Capital Market

  Shares Investment Funds Sukuk and Bonds Exchange Traded Funds Real Estate Investment Traded Funds
Transparency High Low High High High
Flexibility High Low Moderate High High
Cost Low High Low Low Low
Diversity of Investment Low High Low High Moderate
Risk High Low Low Moderate Moderate
Return High Moderate Low Moderate Moderate

Fundamentals of Investments

Basics of Investments

There is a direct relationship between return and risk. In other words, the higher the risk the higher possibility of gaining profits. One of the keys to a successful investment is to find a way to balance the risks and profits in the investment portfolio. An investor can achieve that balance through diversifying the investments among different categories of financial instruments.

Risks of Investment

It is known that there is no such thing as a risk-free investment, but understanding what causes the risk can help you create an investment strategy that protects you against losses. Some of the risks you may face are the result of a recession in the global economy. In other cases, a slowdown in a particular industry might cause losses. You should always be aware that capital market products are higher in risk than any other products. Some examples of investment risks are:

  • Loss of capital
  • Prices fluctuation

Financial Planning

To manage your money effectively, you will need to have a financial plan. A financial plan is a written statement of your financial goals and your strategies for achieving these goals. This plan includes:

  • A summary of the existing assets.
  • A list of the primary financial goals and the timeframe for meeting these goals.
  • An estimation of the expected costs to achieve these goals.
  • A list of investment types required to achieve these goals.
  • A schedule for implementing these investments.

Financial planning is an on-going process. You have to evaluate your progress on a regular basis, update your list of goals, and modify your strategies if needed.

Common Mistakes in Investment and How to Avoid them

High frequency trading

Buying and selling too frequently is not a good strategy if the investor is not an expert in the capital market. Most good investments go up and down in value in the short term, but gain value over a long period of time. If you sell rapidly, you may miss out on the long-term benefits. You might also end up losing money if you sell rapidly because the price usually drops to less than what you paid, but soon enough goes up in value if you have carefully selected a good investment.

Holding investments for too long

Monitoring your portfolio regularly helps you make good decisions like selling investments that are not performing well. Holding investments that consistently provide disappointing returns can drag down your entire portfolio. That is why it is strongly advised to keep an eye on your investments and take the time to evaluate your portfolio on a regular basis.

Tips and rumors

Buying and selling investments based on tips and rumors is extremely dangerous. With any rumor there are several risks:

  • The information could be right or wrong
  • The rumor could be purposefully misleading to get people to invest in a certain stock which will eventually lead to personal gains
  • Rumors may encourage illegal investments

Allocating your portfolio to one company

Even though investing in a single company might seem like an excellent investment, putting all your money in one place is not a good investment. There is always a chance that something could go wrong with any company no matter how strong its performance and reputation seems. If you have sold your other investments to buy these investments that turn out to be not wise choices, you could end up losing everything.

Borrowing to invest

When you find an investment that you think will make a lot of money, it can be tempting to borrow from a bank, a relative, or a friend in order to invest as much as you can and earn a return. If your investment does not perform as good as you hoped, you could end up losing the borrowed money as well as your own. It is a lot smarter to invest what you can afford, and build your capital over time.

How to Evaluate the Performance of Listed Companies

Before taking any investment decision you should evaluate the company, its property and its financial position through the following:

Reading the company’s financial statements

Financial statements are a good example of the detailed information that reflects the company’s performance. Keep in mind that these financial statements can reflect the general direction of the company when compared to statements of other companies in the same sector. Hence, reading the financial statements gives the investor useful information that helps him/her in evaluating the company’s performance and compares it with other companies that have the same business. The financial statements are divided into the following parts:

1. Balance sheet

The balance sheet is included in the first part of the financial statement. It represents a detailed image of the company’s financial status when published. The balance sheet includes the company’s assets, liabilities and shareholders’ equity which give a clear idea on its book value. It is a known fact that it is not a good sign if the company’s liabilities outperformed its assets because this means that its losses are more than its capital which could lead the company to be unable to practice its business and maybe bankrupted. The balance sheet is divided into the following parts:


Companies own assets just as individuals have assets of value, like real estates or jewelries. However, unlike individuals, companies are obligated to disclose what they own to the public. Companies can own tangible assets such as computers, machinery, money and real estate; or intangible assets such as trademarks, copyrights or patents. Generally, company’s assets are categorized according to the ability to change it into cash in two types:

  • Current Assets:

    Current assets include cash and other properties owned by the company that could be easily converted into cash in one year. It is an important indicator of the company’s financial status because it is used to cover short term obligations of the company’s operations. If the company suffers from a decline in its current net assets then that means it needs to find new means to finance its activities.

  • Non-Current Assets:

    Non- current assets are owned by the company, and need more than a year to be converted into cash. Non-current assets might include any assets that the company does not plan to convert into cash during the next year. Fixed assets such as lands, buildings, machinery also fall under non-current assets. The importance of the company’s non-current assets volume is based on the sector it belongs to.


All companies- even profitable ones- have debts. In the balance sheet, debts are called “Liabilities”. A company’s successful management is based on its ability to manage its liabilities which are considered part of its business. Examples of a company’s liabilities are debt of suppliers, shareholders payable, expenses and Long-term loans.

Liabilities are divided into two parts:

  • Current Liabilities

    Obligations the company should pay in no more than one year.

  • Non-Current Liabilities

    Obligations the company is not restricted to pay within at least one year.

Shareholders’ Equity:

Shareholder’s equity equals the invested money that was distributed as shares plus the undistributed profits, which represents retained earnings held and re-invested by the company. They are not distributed to shareholders. To make it simple, shareholders’ equity represents the main source of financing the company’s business. The more shareholders’ equity, the more operational funds are generated in a company.

Example of Financial Statements

(Saudi Joint Stock Company)

Balance Sheet
As at December 31, 2016
(Saudi Riyals)

Assets Notes 2016 Saudi Riyals 2015 Saudi Riyals
Current Assets
Cash and cash equivalents 4 36,000,000 20,000,000
Account receivable 5 10,000,000 8,000,000
Inventories 6 12,000,000 10,000,000
Due from related parties 7 3,000,000 2,000,000
Prepayments 8 1,000,000 500,00
Total Current Assets 0 62,000,000 40,500,000
Non-Current Assets
Property and equipment 9 155,000,000 150,000,000
Investments in affiliates 10 8,000,000 10,000,000
Intangible assets 11 15,000,000 15,000,000
Total Non-Current Assets   178,000,000 175,000,000
Total Assets   240,000,000 215,500,000
Current Liabilities
Long term loans (Current portion) 12 30,000,000 40,000,000
Short term loans 13 20,000,000 8,000,000
Trade payables 14 6,000,000 2,000,000
Accrued expenses 15 3,000,000 900,000
Due to related parties 16 4,000,000 500,000
Total Short Term Liabilities   63,000,000 51,400,000
Non-Current Liabilities
Long term loans 17 70,000,000 80,000,000
Employees' end of services benefits 18 40,000,000 20,000,000
Total Long Term Liabilities   110,000,000 100,000,000
Total Liabilities   173,000,000 151,400,000
Shareholders' Equity
Share capital   40,000,000 40,000,000
Statutory reserve   21,000,000 21,000,000
Retained Earnings   6,000,000 3,100,000
Total Shareholders' Equity   67,000,000 64,100,000
Total Liabilities and Shareholders' Equity   240,000,000 240,000,000

The accompanying notes 1 to 26 form an integral part of these financial statements.

2. Income Statement

The income statement details the company’s profit sources based on its performance in selling products, offering services or based on its investments’ income. In other words, the income statement shows the company’s income generated by its sales and the outgoing cash used to cover expenses. The company details the different sources for its income and expenses in the income statement, which reflects a clear image of the company’s performance. Some of the main items covered in an income statement are income, expenses, gross profit, net profit, operating profit (income from the company’s major operations), in addition to gains and losses from other operations. In general, a company has more than one source of income and several different kinds of expenses.

(Saudi Joint Stock Company)

Income Sheet
As at December 31, 2016
(Saudi Riyals)

  Notes 2016 Saudi Riyals 2015 Saudi Riyals
Revenues   20,000,000 10,000,000
Cost of revenues   2,000,000 1,000,000
Gross Profit   18,000,000 9,000,000
General and administrative expenses 19 1,000,000 500,000
Marketing expenses 20 500,000 400,000
Deprecation amortization 21 200,000 100,000
Other expenses 22 50,000 25,000
Operating Profit   16,250,000 7,975,000
Other revenues 25 400,000 200,000
Financial expenses 26 30,000 10,000
Income For The Year Before Zakat   16,620,000 8,165,000
Zakat   415,500 201,125
Net Income For The Year   16,204,500 7,960,875

The accompanying notes 1 to 26 form an integral part of these financial statements.

3. Cash Flow Statement

The cash flow statement is considered one of the important financial statements in any corporation. It explains in detail the amount of incoming and outgoing cash flows during the last year. It also details sources of money and how it was spent in terms of operating, investing and financing. A company divides its cash flow statements into the following categories:

  • Cash flow resulting from operating activities: Cash received or consumed as a result of the company’s internal business activities.
  • Cash flow resulting from investing activities: Cash received or consumed as a result of the company’s investments.
  • Cash flow resulting from financing activities: Cash received or consumed as a result of the company’s selling its shares, or the company’s issuance of debt instruments, or a result of the company’s repayment of its loans.

(Saudi Joint Stock Company)

Statement of Cash Flows
As at December 31, 2016
(Saudi Riyals)

  2016 Saudi Riyals 2015 Saudi Riyals
Cash Flow From Operating Activities
Income For The Year Before Zakat 16,620,000 8,165,000
Adjustment for:
Deprecation amortization 200,000 100,000
Share of income from investments in affiliates 400,000 200,000
Changes In Working Capital
Account receivable (10,000,000) (8,000,000)
Inventories (12,000,000) (10,000,000)
Due from related parties (3,000,000) (2,000,000)
Prepayments (1,000,000) (500,000)
Net Cash Generated From Operating Activities (8,780,000) (16,535,000)
Cash Flow From Investing Activities
Investment in properties and equipment (5,000,000) (10,000,000)
Investments in affiliates (2,000,000) (2,000,000)
Net Cash Generated From Investing Activities (3,000,000) (12,000,000)
Cash Flow From Financing Activities
Term loans (12,000,000) (4,000,000)
Loans repayment 30,000,000 40,000,000
Net Cash Generated From Financing Activities 18,000,000 36,000,000

The accompanying notes 1 to 26 form an integral part of these financial statements.

Understanding financial ratios

Financial ratios give the investor a quick and easy way to judge the company’s financial performance in a specific period of time. These ratios could also be used to compare between companies’ performances in the same sector, or compare it with the average performances in the market. Below are some of the important ratios that analysts and investors use to help them determine a company’s fair value:

  • Price – to – Earnings Ratio (P/E):

    To examine the company’s profits in terms of share price, investors should view the price to earnings ratio (P/E), known as “the multiplier”. To calculate the multiplier, the share’s market value is divided by earnings per share as follows:

    Share’s market value
    ----------------------------------------- = Price – to – Sales
    Past year’s per-share revenue

  • Price – to – Book Ratio (P/B):

    It is used to compare a company’s book value to its current market price. An investor can calculate the price-to-book ratio per share by dividing the market price per share by the book value per share as follows:

    Market price per share
    ------------------------------------ = Price – to – Book Ratio (P/B)
    Book value per share

  • Rate of Return on Shareholders’ Equity Rate (ROE):

    The ROE measures the percentage of the company’s profit to shareholders’ equity. It is calculated by dividing the company’s net income by shareholders’ equity as follows:

    Net income
    ---------------------------- = Rate of Return on Shareholders’ Equity Rate (ROE)
    Shareholders’ equity

  • Rate of return on assets:

    The rate of return on assets could give the investor an idea on how a company manages and invests its assets. It is calculated by dividing the company’s net income by total assets as follows:

    Net income
    ---------------- = Rate of return on assets
    Total assets

  • Current Ratio:

    It measures the company’s available cash at the current period. It is calculated by dividing the company’s current assets by its current liabilities as follows:

    Current assets
    ----------------------- = Current ratio
    Current liabilities

  • Quick Ratio:

    It measures the company’s ability to cover its current obligations without liquidating the inventory which could be considered a great loss since it is the least current asset to be liquefied. It is calculated by dividing the current assets subtracted by the inventory by current liabilities as follows:

    Current assets - Inventory
    ------------------------------------ = Quick ratio
    Current liabilities

Reading the company’s Board of Director’s (BOD) report

The Board of Director’s (BOD) report is a report that must be provided by each listed company on the Saudi Exchange to investors according to the listing rules issued by the Capital Market Authority (CMA) along with the financial statements of the company. This report is considered to be an important source of information and data needed by investors to identify the main activities of the company, the nature of its investments, its management structure, and the level of performance during the year. Investors rely on this report when it comes to their investment decisions, in addition to other financial data. The (BOD) report is an annual letter from the Board of Directors to shareholders and investors, which includes a range of basic information about the company’s activities, highlighting executed projects in addition to the analysis of operational and financial results. Furthermore, the report provides a clear vision about the structure of the company’s Board and the extent of its commitment to corporate governance regulations.

Keep up to date on companies’ latest news announced on the Saudi Exchange website

Investors should be up to date with the latest news and developments related to listed companies which are regularly announced on Saudi Exchange’s website.

Know Your Rights

Your rights as an investor

  • The right to obtain a portion of the company’s assets upon liquidation.
  • The right to attend shareholders’ assemblies and participate in their deliberations and vote for decisions
  • The right to dispose of stock.
  • The right to monitor the Board’s activities and to file a liability suit on Board members.
  • The right to inquire and request information that does not contradict with the company’s interest and capital market rules and regulations.

Your rights as an investor in mutual funds

  • The right to receive an updated copy of the fund’s terms and conditions.
  • The right to receive quarterly reports covering the net asset value (NAV) of fund units, the number of owned units and their net value, and your transactions log including any dividends paid after the last received report.
  • The right to receive revised financial statements free of charge upon request.
  • The right to be notified of any significant amendments in the terms and conditions of the fund, and the right to receive a summary of these amendments (60) days prior to the effective date.
  • The right to be notified of any changes in the fund’s Board of Directors.
  • The right to receive a copy of any annual updates issued by the fund manager regarding actual fees and amended information of the fund performance.
  • If terms and conditions do not specify the fund’s validity period and expiry date, the investor has the right to be notified by the fund manager of terminating the fund at least (60) days prior to the termination.
  • The fund manager must pay recovery returns in due time.
  • The right to receive special procedures to deal with complaints from the fund manager upon request.
  • The right to file a formal complaint to the Capital Market Authority (CMA) through official channels. The CMA has a list of all existing investment funds on its website, which are managed by financial institutions, in order to protect investors against dealing with unauthorized persons.


Tadawulaty is a suite of services offered by the Saudi Exchange in cooperation with its members. It holds a bundle of new financial services targeting investors and issuers. Services offered aim at benefiting the investment community within the Saudi capital market by providing value-added services to market participants. The services provided aim at:

  • Increasing the level of confidence and transparency regarding investors’ ownerships and rights.
  • Empowering investors by enabling them to conveniently exercise their voting rights, inquire on their dividend entitlements, receive alerts and notifications on certain important events, etc.
  • Bridging the gap between listed companies and their shareholders, as well as enhancing communication and information exchange amongst them.
  • Providing a convenient and direct reporting mechanism from the ultimate source of information (Securities Depository Centre) to different market participants.

Offering an on-going process for validating and updating information maintained at Saudi Exchange.

How To Trade

As an investor, if you plan to start trading in the Stock Market you should follow these steps:

  • Open an investment account through brokers who are authorized to practice all activities related to securities in the Saudi Capital Market.
  • Fill in the required forms to buy or sell a particular stock from through brokers, through the purchase and selling services provided by E-channels offered by some brokers, or by phone without the need to be present in person.
  • When filling the form, the investor should determine the order type whether it is a buy or sell order.
  • The investor should determine the validity of the order.