What Should You Look For In A Company’s Quarterly Reports?
Experts say that reading a company's quarterly earnings is an art that must be honed over time with careful and deliberate work. A company's quarterly earnings report is like an internal compass that shows how it is doing now and how it will do in the future. It also helps figure out how much the company is worth. Still, many regular investors still don't understand how a company's quarterly earnings work. How to read a company's quarterly results? What can you tell about the company from these results? Why do companies even bother to report their quarterly results? Security and Exchange Board of India (SEBI) rules say that every listed company must make its quarterly reports public. This is to protect the interests of investors. As an investor in a company, the quarterly results will help you figure out how the company is doing now and how it will do in the future. You can also tell from the quarterly result if you should invest in the company for the long term. The quarterly results of a big company could have a direct effect on the market for short-term investors or intraday traders. When a big company announces its quarterly results, the markets go up or down depending on the effect. How can you read results for a quarter? If you are a beginner you can focus on three main parameters of the report. These are the sales growth, debt to equity ratio and promoter holding. WIth an increasing sales growth and a high promoter holding, you can know that the company is doing well. Debt to equity ratio tells you whether the company has incurred more debt compared to the previous quarter. Gross sales Gross sales is the total amount of money a business makes in a certain amount of time. Gross sales that keep going up over time are a sign of growing demand and a healthy business. Net sales Gross sales minus discounts, returns, and allowances equal a company's net sales. When putting together the top-line revenues and the statement of income, net sales are often taken into account. This is a better measure of the health of a business than gross sales. Expenses and income Operating income is the amount of profit made by a business after operating costs like wages, depreciation, and the cost of goods sold are taken out. It shows how much money the company is making. On the other hand, other-than-business income is income from sources other than the business. It includes, among other things, dividends and rental income. A steady drop in operating income could mean that the company is losing market share or that fewer people want to buy its goods or services. Things to think about when writing quarterly reports Interest cost To run a business, the interest cost is the money paid for a loan amount. So, if the cost of interest goes up, it means that the company has more debt. What else should you look for in a quarterly earnings report? Investors should also look at things like net interest margins and non-performing assets when it comes to banks. Experts say that investors should also look at how much cash the company has on hand and how many shares have been pledged. Not every company may be declaring their pledged shares every three months. Investors should also look at the asset-liability statement, which shows half of the financial year when they look at the results for the next quarter. Why should investors pay attention to news about earnings? Earnings reports are often one of the most important things that move stocks. When big stocks report earnings, they can shake the market. When the earnings reports come out, the stock market could be at a record high or a record low. When a company's sales go up but it doesn't meet the analysts' expectations, people will sell their shares quickly. So, the report's estimates are also just as important as the report itself. Before analysing the quarterly reports, make sure to compare them with the previous year’s audited report as well. This will help you with understanding the projections for the upcoming quarter as well.