It’s the season of quarterly results again! Yes! it’s mandatory for the listed companies in the UAE to file their quarterly results with the stock market quarterly 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 analyse the continued performance of the corporate. Lately, companies give us quarterly results and guidance for subsequent few quarters that function an important insight for the analysts within the stock exchange.
If you’re an investor within the stock exchange and wish to analyse companies on your own, these questions will crop up like the way to analyse quarterly results and the way to read the quarterly results of a company? Before diving right into the things that you should consider, here a re some important fundamental qualities that you should check:
Revenue growth:
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 that the topline growth. the expansion within the top line has got to reflect the qualitative and quantitative improvement over time.
This means that the revenues got to grow on the volume’s front and also on the pricing front.
If the revenue growth is backed by volumes, then 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 pricing front, then it shows that the pricing power of the corporate has improved within the industry thanks to which the products are being accepted even after the worth hike.
But this will even be a onetime affair because finally, subsequent growth has got to come thanks to volumes.
Profit growth:
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 extremely price sensitive.
Any change within the earnings pattern with reference to the analysts’ expectations would cause 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 then the stock will see price hammering and the other way around.
It is therefore important to assess on the standard of the expansion of the operating profit which brings us to subsequent step.
Margins:
The margins reflect the expansion percentage which the business is in a position to earn from its core operations.
This gives a thought of the sustainability of the present margins. the prices incurred by the business and therefore the measures 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 as 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 so as to urge a glance at the standard of earnings. this 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 got to be adjusted as these incomes or losses aren’t recurring in nature.
So, it’s better to regulate the figure then ascertain the expansion or de-growth.
While the stock price is usually determined by the earnings, 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:
The management commentary is one among the foremost important parameter that an analyst usually investigates.
Both the commentary on current quarter and therefore the guidance for coming one or two years is used for forecasting and valuation purposes.
Investors got to know what the management is expecting and also how is it 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 that the corporate has undertaken or is close to take.
Other than these, browsing the Audit report and Notes to accounts is additionally important so as 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 seem for in these quarterly results:
- Operating Profits
When watching the quarterly results, we should always check out the operating profits. The operating profit shows the continued business conditions and therefore the efficiency of the management.
An investor 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 of running the business-like salaries, utility bills like rent, electricity and other office expenses, are included in Operating expenses
Similarly, research and development costs, legal and bank charges, among others are also included. Other fixed and variable expenses that form a neighbourhood of the operating costs got to be deducted from income for arriving at the business’s operating profit.
- Margins
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 successful.
- Interest Cost
Interest cost refers to the cash purchased a loan amount for running a business. Hence, a rise within the interest cost indicates an increase within the company’s debt.
- 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 upper is that the profitability.
- Earnings Per Share (EPS)
For an investor, it’s essential to ascertain how the EPS is improving. a better EPS indicates better performance of the corporate, leading to higher earnings for investors.
EPS is taken into account a really good indicator of the company’s performance. This, in turn, leads to more earnings for the shareholders.
The EPS ratio helps investors curious about a gentle source of income by providing them with an understanding of the space a corporation has for increasing its current dividend. EPS of a corporation should be considered concerning other companies.
- Gross Revenue
Gross sales ask 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.
- 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 top-line revenues. Income is a far better indicator of business health than gross revenue.
- Management
The management commentary is one among the foremost critical parameters that an analyst usually investigates.
The commentary on the present quarter and therefore 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 the way it’s planning for the road ahead.
- Comparison on a QoQ and YoY basis:
This is one among the foremost tactical parts when analysing the quarterly results. So, should we analyse the quarterly result on a QoQ or a YoY basis?
Basically, generally, we put more stress on a YoY basis because it reflects the seasonality of the operations far better.
It gives a way broader view of the company’s developments. But in some sectors or companies where there are rapid changes and continuous growth, as consumption, we should always also 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.
Conclusion
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 together with your family and friends and helping us in our mission of spreading financial education. Watchout for more such content and stock market trading courses from the best stock market tips provider!
