Your investments require monitoring; don't ignore this report at any cost
All companies that are listed in Indian stock exchanges, including the National Stock Exchange of India and BSE, are required to publish a report detailing their financial performance within 45 days of the end of every quarter.
This is not just for investors in the stock market; fixed-income investors, too, need to look at this report.
We will explain why in another article. Keep reading Cuppa regularly, as always.
For now, let us look at what this quarterly financial report is.
Regulatory Requirement
This is to comply with the Securities and Exchange Board of India’s regulation that stipulates disclosure of quarterly financial information if a listed company has to stay listed on the stock exchanges.
This ensures that investors are periodically aware of their company’s financial performance, thereby ensuring efficient price discovery.
Why should investors bother?
Investing in the stock market requires a keen eye for detail and a deep understanding of various financial metrics.
One of the most critical aspects investors often overlook is how to interpret company results effectively. Whether you are a seasoned investor or a newbie, understanding what to look for in financial statements, earnings reports, and other disclosures can give you a competitive edge.
What should investors look at in a company result?
Sales: The Top Line
When examining a company's results, you should first look at revenue, also known as sales or the top line. Understanding whether the company is making money from its core operations is crucial.
Assess the growth rate and compare it to previous quarters and years to understand the business's sustainability.
Net profit: The Bottom Line
Earnings or net profit is the next essential factor to consider. It's the profit a company makes after all expenses have been accounted for.
Keep an eye on the earnings per share (EPS), which indicates the profit allocated to each outstanding share of common stock.
A consistently growing EPS is generally a good sign.
Extraordinary Income
Check if the total sales include any extraordinary income. Find out whether it has come from any activity not aligned with the company’s core business.
Operating Margin
The operating margin is a profitability ratio that shows how well the company manages its costs.
A higher operating margin usually suggests better operational efficiency and greater profits.
Interest expenses
Ascertain whether the changes in interest expenses are due to a change in interest rates or debt levels.
High debt levels can be a red flag, and you need to check what the debt is used for.
Lower debt levels are generally considered safer.
Dividends
If you're an income-focused investor, dividends should be on your radar.
Dividends are payouts made to shareholders from the company's earnings.
Companies with a strong history of dividends are often more stable and financially robust.
Notes to Accounts
These are usually after the company’s Profit & Loss Statement, in quarterly results, and offer further information and clarification.
It could give details of the extraordinary income, if any, and state whether it is a one-time or recurring event.
The notes to accounts could also give details regarding the issue of bonus shares or buyback programmes if any are underway or have been completed.
Guidance and Outlook
Always check the company's guidance or projections for the future.
This information can give you an idea of what the management expects regarding revenue, earnings, and other key metrics in the upcoming quarters.
Market Share and Growth Prospects
These days, many companies also disclosure their investor presentation after the results are announced, sometimes a day after the results are announced.
Read them to understand a company's market share and its standing in the industry. This can offer insights into its competitive advantages or disadvantages.
Cash Flow
SEBI follows a disclosure-driven regulatory policy that puts the onus on listed companies to make sufficient disclosures for investors to stay informed.
Quarterly results are one of the mandatory disclosures that a listed company has to file.
Reading and interpreting company results may seem daunting initially, but the process becomes significantly more straightforward once you know what to look for.
By paying attention to these key metrics and financial statements, you can make more informed decisions and review your investments.
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