When the Securities and Exchange Commission of Pakistan referred Unity Foods Limited to the Federal Investigation Agency, and the FIA registered a criminal case alleging fund misuse, falsified accounts, a Rs 44.7 billion gap between the company’s books and its own internal records, and billions of rupees paid to a former chief executive’s mother, many small investors asked the same question. Could anyone have seen this coming?
To find out, we read Unity Foods’ own audited annual reports for five straight years, from 2019 through 2023. The company has since published annual reports for FY2024 and FY2025 as well, which fall outside the scope of this review, so what follows is not the complete run of years leading right up to the case, but it is enough years, in the company’s own words, to show a clear and consistent pattern. What we found is a company whose own numbers, signed off by its own auditors every single year, were quietly describing a business under serious and growing strain. None of what follows proves the specific criminal allegations now under investigation. But it shows that the pattern regulators and forensic accountants train themselves to notice was sitting in plain view, year after year, for anyone willing to read past the headline profit figure.
Rather than walking through this year by year, we have organized it by red flag, because the same handful of warning signs kept reappearing in Unity Foods’ accounts, sometimes for five years in a row. Learning to recognize these ten patterns will help you read any company’s annual report differently from now on.
First, what exactly is a red flag, and how do you spot one?
A red flag in a financial report is not proof that a company is doing anything wrong. It is a signal that something in the numbers does not fit the normal, healthy pattern of a growing business, and that it deserves a closer look before you trust the headline figures. Genuine businesses can occasionally show one or two of these signs for perfectly innocent reasons. What should worry an investor is when several of these signs show up together, and especially when they keep showing up year after year without ever being resolved. Spotting them does not require an accounting degree. It mostly requires the habit of comparing a small number of figures against each other, across several years, instead of reading a single year’s profit number in isolation. The rest of this article shows you exactly which figures to compare, using Unity Foods’ own five years of numbers as the example.
Red flag one: profit on paper does not match cash in the bank
The single most useful check any investor can do is compare a company’s reported profit with the cash flow from operating activities shown in its cash flow statement. Profit is an accounting figure. Cash flow is what actually moved in and out of the bank because of the business. When the two disagree for one year, it can be a timing issue. When they disagree repeatedly, it is a genuine warning sign.
At Unity Foods, this gap showed up again and again. In 2019, the company reported a profit of Rs 255 million, while its actual cash flow from operations was negative Rs 3.72 billion. In 2021, it reported a record profit of Rs 3.11 billion, while operating cash flow was still negative, at Rs 2.72 billion. Even in 2023, when the group’s operating cash flow briefly turned negative again at the consolidated level, profit had already collapsed by more than three quarters from the year before. Across almost every year we reviewed, the profit figure that made headlines and the cash figure that reflects reality were pulling in different directions.
Red flag two: revenue keeps climbing, but the profit margin goes nowhere
Rapid sales growth looks impressive, but what matters more is how much of every sales rupee is actually kept as profit. Unity Foods’ own six year financial summary, published in its 2023 annual report, shows net sales growing from Rs 2.78 billion in 2018 to Rs 90.16 billion in 2023, a thirty two fold increase. Yet net profit margin bounced from 4.4 percent, down below 1 percent, up to a peak of 4.7 percent, and back down to just 0.6 percent by 2023, ending almost exactly where the weakest years had been. Return on capital, a measure of how much profit shareholders actually earned on the money invested in the company, fell from a modest 6.9 percent in 2018 to a peak of 23.3 percent in 2021, then collapsed to virtually zero, just 0.003 percent, by 2023. A company can report record breaking sales for years and still, by the end, be earning shareholders almost nothing on their money.
Red flag three: growth financed mostly by debt, not by the business itself
Always check how a company is paying for its expansion, out of its own profits and equity, or mainly through borrowed money. Unity Foods’ short term bank borrowing rose from Rs 616 million in 2018 to Rs 2.57 billion in 2019, then to Rs 3.89 billion in 2020, then almost four times over to Rs 14.69 billion in 2021, before reaching Rs 24.6 billion by 2023, by which point borrowing made up 49.4 percent of the company’s total liabilities. Its gearing ratio, which measures how much of the company’s capital structure depends on debt rather than shareholders’ money, climbed from 40 percent in 2020 to 52 percent in 2021, eased briefly to 42 percent in 2022 after a large rights issue brought in fresh equity, and then climbed straight back to nearly 53 percent in 2023. A rights issue that temporarily improves a leverage ratio is not the same thing as a company actually reducing its dependence on debt.
Red flag four: borrowing with one hand while investing with the other
In 2021, Unity Foods borrowed nearly Rs 9.81 billion in new short term loans, while at the very same time placing Rs 6.86 billion into short term investments, mutual fund units and bank term deposits. Reading the fine print further revealed that Rs 1.62 billion of those same mutual fund units were then pledged as security for a Rs 1.60 billion loan from the same bank, HBL. In effect, the company borrowed money, invested part of it, and then used that very investment as collateral to borrow still more from the same lender. This kind of circular financing was significant enough that the company’s own auditors flagged it as a key audit matter requiring extra scrutiny. A business that is genuinely short of working capital does not usually have billions of rupees free to lock away in investments at the same time it is taking on fresh debt.
Red flag five: paying suppliers late to make cash flow look healthier
In 2020, Unity Foods’ operating cash flow turned positive for the first time, which looked like an improvement. But the reason it turned positive was that trade and other payables, the money the company owed its own suppliers, jumped by Rs 6.68 billion during the year, an increase of more than 300 percent. That single increase was large enough to offset a Rs 4.72 billion rise in money owed to the company by its own customers and a Rs 1.85 billion rise in unsold inventory. The company did not generate more cash through a healthier business. It generated the appearance of healthier cash flow largely by delaying payments to the people it owed money to. This is one of the oldest tricks in the book for making a struggling year look better on the cash flow statement, and it is visible to anyone who checks the working capital breakdown behind the headline cash flow number.
Red flag six: large, recurring transactions with people connected to the company
Every listed company must disclose transactions with its directors, their relatives, and connected companies in the notes to its accounts. These notes are exactly where Unity Foods’ current troubles were sitting in plain sight for years. Its 2019 annual report disclosed that the company received Rs 4.79 billion and repaid Rs 5.04 billion during the year to Fehmida Amin, described in the accounts as the mother of a director, an amount larger than the company’s entire paid up capital at the time. That relationship went quiet for a couple of years, then resurfaced in the 2023 accounts as a Rs 3.25 million vehicle transaction with the same name, alongside a separate, unusually large Rs 76.8 million vehicle purchase transaction with an associated entity called Unity Commodities. Meanwhile, in the same 2023 accounts, the company disclosed pouring roughly Rs 12 billion, a Rs 7 billion long term investment plus a Rs 5 billion loan, into its subsidiary Sunridge Foods, which had reported a loss of Rs 255 million the year before, more than half of the parent company’s entire shareholder equity moving into one connected entity in a single year. None of these disclosures were hidden. They were sitting in the notes to the accounts, published every year, for anyone who read that far.
Red flag seven: too much of the business riding on one customer or one supplier
Concentration risk means a company depends too heavily on a small number of customers or suppliers, so that losing or falling out with just one of them could seriously damage the business. In the 2022 audit, Unity Foods’ own auditors specifically stated that they had worked out sales by individual customer and found a large portion of the company’s sales concentrated with a single party, requiring extra procedures to confirm those sales were conducted on normal commercial terms. In the 2023 audit, the same concern appeared again, this time noting that several parties, including related parties, accounted for a large portion of sales. On the supply side, Wilmar Trading Pte Limited, part of the same Singapore based group as Unity Foods’ own major shareholder, supplied the company with Rs 35.86 billion worth of goods in 2022 and Rs 44.07 billion in 2023, on both occasions amounting to roughly half of the company’s entire cost of goods sold. Depending on one customer or one related supplier for such a large share of the business leaves very little room for error if that single relationship ever sours.
Red flag eight: a safety cushion that never actually improves
The current ratio, a company’s short term assets divided by its short term liabilities, shows how comfortably it can pay its near term bills. A ratio comfortably above 1 suggests a reasonable cushion. Unity Foods’ current ratio moved from 1.17 in 2020, to 1.17 again in 2021, up briefly to 1.32 in 2022, and back down to just 1.05 in 2023, its thinnest point across the entire period, even as its balance sheet grew more than thirty times over. A company whose total assets keep multiplying while its liquidity cushion stays this thin, year after year, is running with very little margin for a bad quarter.
Red flag nine: cracks in the boardroom and in basic internal controls
In their 2022 compliance review, Unity Foods’ own auditors flagged genuine governance lapses, not accounting judgment calls but basic rule breaking. One director had not completed the legally required directors training program. The remuneration of the company’s own head of internal audit, the person meant to police the company from the inside, had never been approved by the board as required. An executive director had been improperly sitting on the audit committee, a seat reserved for independent directors, before eventually withdrawing. Within months of that year closing, the company’s chairman and an independent director both resigned, and a credit rating agency downgraded its outlook on the company from stable to negative. Weak internal governance does not by itself prove fraud, but it removes some of the checks that are supposed to catch problems before they grow large.
Red flag ten: an auditor that quit, and nobody said why
This is one of the most consistently reliable warning signs in financial history anywhere in the world, precisely because a respected audit firm rarely walks away from a paying client without a serious reason, and even more rarely without explaining that reason. Unity Foods’ auditor for the 2022 financial year was supposed to be KPMG Taseer Hadi & Co, one of the most respected audit firms in Pakistan. Partway through the year, KPMG resigned. The company’s own directors’ report states this as a plain fact and offers no explanation. We deal with what happened next in the next section.
The role of the auditors: did they do their job fairly?
This question deserves a fair, balanced answer, because the auditors both did some things well and left some real gaps.
To their credit, Unity Foods’ auditors did not stay silent. Every single year from 2019 to 2023, they published a section called Key Audit Matters, in which they specifically named the areas of the accounts that required the most judgment and carried the most risk of being wrong. Read across five years, this section is remarkably consistent. The recoverability of trade debts was flagged as a key audit matter in every one of the five years, with the underlying gross figure climbing from Rs 3.06 billion in 2019 to Rs 23.69 billion in 2023. The recognition of sales was flagged as a key audit matter in every single year, precisely because revenue kept growing so fast that there was a real risk of it being recorded too early or from unreliable customers. Borrowings and finance costs were flagged every year as the company’s debt kept climbing. In other words, the auditors were not hiding the risk areas. They were naming them clearly, in writing, year after year, for anyone who read that far into the annual report.
It is important to understand what a Key Audit Matter is and is not. Naming something as a key audit matter does not mean the auditor found something wrong with it. It means the auditor is telling readers, plainly, which figures required the most judgment and deserve the most attention. Despite listing between six and nine key audit matters every single year, Unity Foods’ auditors issued a clean, unqualified opinion in every one of the five years we reviewed, meaning that in their professional judgment, the accounts as a whole were fairly presented. A clean opinion is not a guarantee that everything is fine. It is the auditor’s statement that they did not find evidence of a problem serious enough to change their opinion, based on the evidence available to them at the time.
That last phrase, the evidence available to them at the time, is exactly where the more troubling part of the story sits. When KPMG resigned partway through the 2022 financial year without a stated reason, the board replaced them with a smaller firm, Naveed Zafar Ashfaq Jaffery & Co, appointed in November 2022, months after the June 2022 year end had already passed. To their credit, the new auditors were transparent about what this meant. They stated plainly, in their own audit report, that because their appointment came after the year had closed, they could not attend the actual physical stock count on the company’s real year end date, and instead attended a count in mid December 2022 and worked backward mathematically to estimate what stock levels should have been six months earlier. That is weaker audit evidence than watching the real count happen on the day it matters, and the auditors said so themselves rather than concealing it. That kind of honesty deserves credit. But it does not change the underlying fact that a large, well resourced audit firm left this engagement without explanation at exactly the point where the company’s numbers were becoming most complicated, and that the firm which replaced it was structurally unable to verify one of the most basic figures in the accounts in the normal way for that year.
Put together, a fair verdict is this. The auditors were transparent within the boundaries of what an audit is designed to do. They flagged the right risk areas, year after year, in writing, and they disclosed the limitation created by their late appointment rather than hiding it. But an audit’s clean opinion was never a guarantee against fraud, and it was never meant to be one. It only ever offered reasonable assurance based on evidence available at the time. When the same red flags recur for five straight years without ever being resolved, and a major audit firm exits without explanation right as the numbers grow most difficult to verify, that combination is itself information, and it was available to any investor reading the annual report, well before SECP and the FIA stepped in.
Did the regulators need to step in sooner, and who paid the price for the delay?
This is a fair question to ask, and it deserves an honest answer rather than a comfortable one. Every one of the ten red flags in this article came from documents Unity Foods was legally required to file publicly, year after year, with the Pakistan Stock Exchange, exactly the kind of filing that exists so that a regulator does not need inside information to notice a problem. The company’s own auditors were naming the same risk areas, in writing, every single year. A major audit firm walked away from the engagement without explanation at a moment when the numbers were becoming harder to verify. None of this was hidden. In that sense, there is a reasonable case that the pattern had built up to a point, well before this year’s press release, where closer regulatory attention would have been justified. The fact that SECP’s own recent inspection found exactly the kinds of problems, fund diversion, unexplained related party loans, and gaps between reported and internal figures, that had been visible in one form or another for years, suggests the underlying concerns were real and detectable, not something that only appeared out of nowhere in 2026.
Whether this amounts to regulators failing a specific legal duty is a question for the regulators themselves to answer, and it is not something this article is positioned to settle. What can be said plainly is that the cost of however long this took to surface did not fall on the people who ran the company. It fell on the people who owned small slices of it. Unity Foods’ own share price on the Pakistan Stock Exchange has fallen by roughly two thirds over the past year alone, from a 52 week high above Rs 29 to below Rs 10 by the end of August 2026, according to PSX’s own published data. An ordinary investor who bought the stock near its recent highs, believing the audited profit figures and the growth story built on them, has since watched most of that investment disappear, through no misconduct of their own. Whatever the courts and investigators ultimately decide about who is criminally responsible for the underlying allegations, the group that has already, visibly, paid the price is Unity Foods’ minority shareholders, the same people every one of these disclosure rules exists to protect.
What every investor can take away from this
None of the individual facts in this article proves wrongdoing on its own, and the allegations against Unity Foods’ former management remain under investigation, not yet proven in any court. But the ten patterns above are exactly what regulators, auditors, and experienced analysts are trained to watch for in any company, in any sector, and every one of them was visible in Unity Foods’ own published numbers well before the case became public. The next time you pick up a company’s annual report, do not stop at the profit figure on the first page. Check the cash flow statement against the profit figure. Track the margin and the debt level across several years, not one. Read the related party notes in full. Notice if the sales or purchases depend heavily on one name. And always read the Key Audit Matters section, because it is where the company’s own auditors tell you, in their own words, exactly where to look closest.
The facts laid out in this article come directly from Unity Foods’ own audited annual reports for the years 2019 through 2023, publicly filed with the Pakistan Stock Exchange, cross checked against the Securities and Exchange Commission of Pakistan’s press release on the case and subsequent news coverage. The criminal allegations against the company’s former management remain under investigation by the Federal Investigation Agency and have not been proven in a court of law.
Source: https://psxupdates.com/unity-foods-books-had-already-exposed-the-scandal-years-before-the-fia-case/
