What should an investor look for in quarterly reports?
Created on 02 Nov 2019
Wraps up in 2 Min
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Updated on 26 Feb 2020
As a shareholder, do you forget holding the shares of a particular company, or are you anxious to know what is happening with the company whose shares you are holding? Well, if you belong to the second category, quarterly results are your savior.
What are Quarterly Reports?
Merely stating, quarterly reportss are a set of unaudited financial statements filed every quarter by public companies to report their performance. Now, what is the simple objective of these reports? The aim of quarterly reports is simple: To ascertain whether the company will be able to achieve its long-term projections or not. The main segments of the Quarterly Results constitute income, expenditure, and profits- in the income statement filed by the company quarterly.
What should I look for in a Quarterly Report?
Investors can focus on a number of things in the quarterly results. The primary focus should be on the growth of revenues and profits. Professionals argue that revenue’ growing at the cost of margin is a warning sign. However, if the margins are intact despite the lack of growth in revenues, one should not discard their investments. Unless the company is not sacrificing its profitability, it would be a bad idea to sell the stock immediately.
For the banking sector, investors should look at the Non-Performing Assets (NPA's) and Net-Interest Margins. NPA's take a toll on banks' profitability since a bank has to make excessive provisions for bad loans. The banks set aside huge funds for anticipated losses (Prudence concept of Accounting), which ultimately decrease the profitability as measured by the Return on Assets (ROA) ratio. The rising NPA's are thus one of the significant factors to be considered while considering a banking stock.
Investors should also look at the level of pledged shares by the company. Notes to accounts mentioned in the financial statements of the company are other relevant information to keep a tab on any accounting policy changes by the company that might hamper profitability.
Another and one of the most important factors to be considered is the rate of Earnings per Share (EPS). A growing EPS is an indicator of growing shareholder’s wealth. If the EPS is falling, it is a sign of declining earnings.
Well, the above discussion clearly suggests that it is imperative to keep a check on quarterly results. However, another important indicator to evaluate and which is not highlighted in the quarterly results is the cash in hand. Too much cash indicates the inability of the company to invest in suitable assets. Too little cash exhibits a liquidity crunch.
Making any profound assumptions about the future of the company by merely reading the reports is incorrect. The right approach is to compare the results of different companies in the same sector and then make an appropriate decision.
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