The Global exchange-listed companies must file their quarterly results with the stock market for the four quarters ending in June, September, December, and March. The March results also will include the annual results of the corporate.
In an era of dynamic changes, quarterly results became important to analyze the continued performance of the corporate. Lately, companies have given us quarterly results and guidance for the subsequent few quarters that function as an important insight for the analysts within the stock exchange.
If you’re an investor within the stock exchange and wish to analyze companies on your own, these questions will crop up, like the way to analyze quarterly results and the way to read the quarterly results of a company? Before diving right into the things that you should consider, here are some important fundamental qualities that you should check:
Corporate Revenue or Sales or Topline are all synonyms utilized in the business terminology for a corporation.
One of the foremost important parameters to research is the topline growth. The expansion within the top line has got to reflect qualitative and quantitative improvement over time.
It means that the revenues grew on the volume and pricing front.
If volumes back the revenue growth, it shows that the business is learning at the bottom level, and therefore the demand for the merchandise is strong.
On the opposite hand, if the expansion is merely thanks to the pricing front, it shows that the corporate pricing power has improved within the industry, thanks to which the products are being accepted even after the worth hike.
But this will even be a one-time affair because, finally, subsequent growth has come thanks to volumes.
The market value tends to react to the profitability of the corporate very effectively.
In the case of quarterly results, the profits (operating and net) tend to be extremely price-sensitive.
Any change within the earnings pattern concerning the analysts’ expectations would cause a price reaction on either side.
For example, if the bulk of the analysts expected the stock to outperform, and during this scenario if it underperforms, the stock will see price hammering and the other way around.
Therefore, it is important to assess the standard of the expansion of the operating profit, which brings us to the subsequent step.
The margins reflect the expansion percentage that the business can earn from its core operations.
It gives a thought to the sustainability of the present margins. The prices incurred by the business and, therefore, the measures are taken to curb the increase in costs will reflect within the future margins.
Thus, growth in margins is equally important to seem for.
Also, we’d like to stay an eye fixed on the varied factors contributing to the margins.
In a quarterly result, the margins will tend to be quite volatile compared to the yearly margins. We’d like to see the factors liable for margin volatility.
For this, management guidance is extremely necessary. Any sustainable margin would be a positive trigger for the corporate.
Quality of Earnings:
In the quarterly profits and earnings, we’d like to dig deeper to urge a glance at the standard of earnings. It suggests which factors supported the expansion or de-growth within the earnings during the quarter.
For example: If a pointy fall within the staple prices has led to margin expansion, then the sustainability of the margins could also be short-lived. Also, if the other happens, that’s if the staple prices rise, then what’s the course of action for the management to combat such price pressure.
Any extraordinary income or loss during the quarter has to be adjusted as these incomes or losses aren’t recurring.
So, it’s better to regulate the figure than ascertain the expansion or de-growth.
While the earnings usually determine the stock price, the qualitative factors determine the valuation, which is generally given by the corporate during their Concall after every quarterly result.
Guidance as compared to the performance:
Management commentary is one of the foremost important parameters that an analyst usually investigates.
The commentary on the current quarter and, therefore, the guidance for the coming one or two years are used for forecasting and valuation purposes.
Investors got to know what the management is expecting and how it is planning for the road ahead.
Other press releases:
Along with the above parameters, it’s equally important to travel through other press releases given by the corporate to the exchanges from time to time regarding any deals, corporate earnings, business updates, and company presentations.
These documents give us a quick outlook on various updates the corporate has undertaken or is close to taking.
Besides these, browsing the Audit report and Notes to accounts is also important to know any accounting changes or if the auditor has raised any red flags for the corporate.
So, in today’s blog, allow us to discuss 9 things to see in these quarterly results:
1. Operating Profits
We should always check out the operating profits when watching the quarterly results. The operating profit shows the continued business conditions and, therefore, the efficiency of the management.
Investors should always remember that a high operating profit indicates a healthy business. The formula for calculating operating profit is:
Operating profit= income – Operating expenses
Expenses for running the business-like, like salaries, utility bills like rent, electricity, and other office expenses, are included in the Operating expenses.
Similarly, research and development costs and legal and bank charges, among others, are also included. Other fixed and variable expenses that form a neighborhood of the operating costs got to be deducted from income to arrive at the business’s operating profit.
One should also check out the margins as they point at the ‘safety net’ of the corporate. The profit shouldn’t ideally come at the value of margin.
So, when there’s a decrease within the EBIT margin of the corporate, it indicates that the company’s profitability has taken successfully.
3. Interest Cost
Interest cost refers to the cash purchased as a loan amount for running a business. Hence, a rise in the interest cost indicates an increase in the company’s debt.
4. Net Profit
A company’s net income refers to the operating profit minus tax minus loan repayment and, therefore, the bottom line.
It is one of the important indicators of a company’s financial health and, therefore, the most sought-after pointer in a quarterly income statement.
One should note that the upper the company’s net income, the higher the profitability.
1. Earnings Per Share (EPS)
For an investor, it’s essential to ascertain how the EPS is improving. A better EPS indicates better corporate performance, leading to higher earnings for investors.
EPS is considered a really good indicator of the company’s performance. It, in turn, leads to more earnings for the shareholders.
The EPS ratio helps investors be curious about a gentle source of income by understanding the space a corporation has for increasing its current dividend. EPS of a corporation should be considered concerning other companies.
2. Gross Revenue
Gross sales ask for a company’s total sales within a stipulated time. An increase in gross revenue is an indicator that shows growing demand and good business health.
3. Net Sales
Net sales ask the sum of a company’s gross revenue minus its discounts, returns, and allowances. Income can often get factored in when reporting on the income statements with the topline revenues. Income is a far better indicator of business health than gross revenue.
Management commentary is among the foremost critical parameters that an analyst usually investigates.
Therefore, the commentary on the present quarter and the guidance for the approaching one or two years are used for forecasting and valuation purposes.
Investors got to know what the management is expecting and how it’s planning for the road ahead.
5. Comparison on a QoQ and YoY basis:
It is one of the foremost tactical parts when analyzing quarterly results. So, should we analyze the quarterly result on a QoQ or a YoY basis?
Generally, we put more stress on a YoY basis because it reflects the seasonality of the operations far better.
It gives away a broader view of the company’s developments. But in some sectors or companies where there are rapid changes and continuous growth, such as consumption, we should always check out the QoQ changes.
For example, the Telecom industry has recently witnessed some growth in their ARPUs, so therein case, QoQ comparison makes more sense than YoY to urge a good idea of the performance of the world or the corporate.
Quarterly results help the investors by providing information that helps explain the company’s performance numbers for the actual quarter. We hope you found this blog informative and use it to its maximum potential within the practical world. Also, show some love by sharing this blog with your family and friends and helping us in our mission of spreading financial education. Watch out for more such content and stock market trading courses from the best stock market tips provider!