Saturday, January 27, 2018

HOW TO READ QUARTERLY FINANCIAL STATEMENTS :- 5 POINTS...


 Dear friends,


   This article taken from financial express


  How to read quarterly financial statements; top 5 points to know

  
As an investor, some of you may be wondering why companies publish their quarterly financial statements apart from their annual reports. Of course, it is mandated by the law of the land and, most importantly, as per listing agreements with the stock exchanges, all listed companies need to disclose their quarterly financial results within 45 days from the end of the quarter in a specified format. Annual reports help investors measure the direction and consistency in the financial performance of a company, whereas quarterly financial reports gives an indication on its capabilities to achieve its long-term projections. Let us see some of the important parameters that you need to look at and what they mean.
Focus on sales
Two types of sales figures are reported in the quarterly financial report. One is gross sales and other one is net sales. Gross sales are popularly known as top line or total sales. A consistent increase in gross sales signals the growth in business. Net sales are calculated by deducting sales return, sales allowance, discount amounts from gross sales. Any unusual increase in sales returns and discounts are not really a good sign.
Operating profit
Operating profit is computed after deducting all operating expenses from net sales. These are the expenses which arise during the normal course running a business. This includes salary and wages to employees, rent, office supplies, electricity bills etc. Operating profits are also known as earnings before interest, tax, depreciation and amortization (EBITDA). Operating profitability reflects the prevailing business conditions and shows how efficiently the management is running the business.
Profit after tax
Profit after tax is popularly known as bottom line, which exhibits the company’s net earnings or losses made during the period. This is derived by deducting all expenses such as interest on loans, depreciation and amortization on assets and tax. The point to be noted is that though items such as depreciation and amortization are expenses there is no cash outflow for the company.
Earnings per share (EPS)
EPS is the amount of earnings made by a company per outstanding share. Outstanding share means those shares which are available in the market for trading. EPS is computed by dividing profit after tax by numbers of share outstanding. You could observe two types of EPS in the quarterly/annual financial statements, i.e. basic EPS and diluted EPS. Basic EPS is the total earnings per share based on the number of shares outstanding, whereas diluted EPS is computed if all convertible securities were exercised. Convertible securities refer to all outstanding convertible preference shares and convertible debentures. Unless the company has no additional potential shares outstanding, the diluted EPS will always be lower than the basic EPS. In the normal course of business, rising EPS is a good sign of a profitable company.
Interest expenses
It is the total sum of the interest paid on different loans taken by the company. Broadly, a company can avail short-term loan which is meant for managing the day to affairs such as working capital loans and may avail long-term loans which are meant for procurement of land, building, machinery etc. However, an increase interest expense depicts that the company has increased its debt. However, proper use of both short and long term debt is important along with rise in sales and profit otherwise rising interest will erase the profitability of a company.
Comparison helps
One cannot infer much by looking at the numbers in quarterly financial statement alone. It is essential to compare it with the prior periods to assess the direction in which the company is moving. One way of comparison is to compare the quarterly performance meaning which quarter-on-quarter (QoQ) basis and another one is based on year-on-year (YoY). QoQ is a comparison of a quarter just prior to the current quarter. For instance, a comparison of the quarter ended March 2016 with the quarter ended December 2015. This is also known as sequential comparison. However, YoY is the comparison of the quarter with the corresponding quarter a year ago such as comparison of the quarter ended March 2016 with the corresponding quarter a year ago.
Investors should not only look at the profit-related figures but also other details such as growth in sales on quarterly basis, changes in the debt equity structure, profit margin and whether company is able to contain the cost of goods sold and interest expenses. Generally, quarterly financial statements help you understand the direction in which a company’s business is moving.

Making a statement
A consistent increase in gross sales signals the growth in business
Operating profit is computed after deducting all operating expenses from net sales,
Profit after tax is popularly known as bottom line, which exhibits the company’s net earnings or losses made during the period.

15 comments:

  1. Wow, its a nice one Sir. thank you very much for the same. It really shows you expertise in this area.

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    Replies
    1. This is not my article, taken from financial express,but very useful for investors.

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  2. Sir,
    Your view on KLRF quarter result ?

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  3. Thanks for getting the info to the blog Sir. I hope we get more fundamental analysis posts like this along with ur hidden gems, so that one day we can easily go through ARs

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  4. Sir plz share some capital management and allocation related information.

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  5. Awesome Bro, do the same on earning's forecast, and balance sheet analysis and stock picking.

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  6. Sir please your view upon INNOVATIVE TYRE trade in SME SEGMENT

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  7. Sir zodiac energy going down day by day...what your view on long term?

    ReplyDelete
  8. Sir,

    Reply something regarding current situation in market

    ReplyDelete
  9. Nothing special in this,after vertical move correction should expected,in bull market correction sharp,short time players stay away is best idea...

    ReplyDelete