One of the key requirements while investing in the shares or stocks of a company is to know the basic details of the company and its business. The prime source for the same is the annual reports of the company that tell all the stakeholders about the performance of the company year on year. These reports can also be used to compare the relative position of the company in the industry as well as among its peers. However, a company does not only publish annual reports. They also have to provide quarterly reports to the shareholders. These reports have a direct impact on the company’s share prices and the general market trend. Here’s how you can read and analyze quarterly and annual reports of a company.
Read More: What do annual reports of a company tell you?
The annual reports of a company are the financial statements of a company that are drafted and shared with all the stakeholders on a yearly basis. These financial statements have to be audited by certified auditors and have to be filed with the MCA within the due dates. The quarterly reports on the other hand have to be drafted and shared with the stakeholders every quarter. The due dates for the same are mentioned hereunder.
The quarterly and annual reports of a company act as a mirror for its financial health. Therefore it is crucial to look past the numbers and to understand the true picture that they show. The key areas in the quarterly and annual reports and their interpretation that you should look for are –
Among the key areas that highlight the financial position of a company are its revenues, its profit percentage, and its operating income. These figures can be used to understand the profit margins of the company, the income generated from the core operations of the company, and its dependence on non-operating income for overall profitability. Investors and other stakeholders have to review these figures and compare the same with the corresponding numbers of the previous periods. This will help them understand the growth trajectory and the relative performance of the company every quarter as well as year on year basis.
Every company requires finance for its short-term and long-term goals and borrowings are a convenient and easily accessible source for the same. While these loans have to be repaid in due course, the interest payments for the same are a mandatory cost that has to be incurred every year.
It is, therefore, important for a company to have sustainable levels of debt where they can easily meet the interest costs without damaging their profit margins or their survival. Hence, it is important to analyze the interest costs in quarterly and annual reports and compare the same with previous periods as well as with peers. This will give a fair idea of whether the company is over-leveraged or if the debt is at optimum levels.
EPS stands for earnings per share and refers to the net profit available per share. It is one of the many parameters that can ascertain the value received by the shareholders at the end of the day and is a contributor to deciding if investing in the company is a sound decision. A rising EPS every quarter or year on year is a sign of a growing company. It assures the investors of the profitability of the company and gives the investors enough confidence to invest in such companies.
The annual and quarterly reports include the balance sheet, profit and loss statement, cash flow statement, auditors reports, and Director’s reports for such period. These reports have to be compared with financial statements of previous corresponding periods as well as that of the competition. Such comparison can then be used to weed out the shortcomings and enhance the growth areas further helping in optimizing the available resources. Investors can compare these financial statements to review the performance of the company when compared to its past performance, its ability to meet its targets as well as its position in the industry.
As mentioned above, the financial reports include the auditor’s reports as well as management reports. These reports have information about the company’s financial health, and future projects as well as any warnings that have the potential to harm its profitability, growth projections, or its ultimate survival in the industry. Such reports have to be reviewed and analyzed with prudence as they reflect the future of the company in the eyes of the management and its auditors, therefore, providing crucial inputs in the decision-making process.
The annual resorts and the quarterly reports of a company are awaited by the shareholders and other stakeholders along with the market pundits too. These reports have a direct impact on the share prices of the company and influence market trends to some extent. It is also important to check if there is any delay in providing such reports as they can be a potential sign of things not being optimum in the company.
The annual reports of a company have to be filed within 60 days of the end of the fiscal year.
The annual and quarterly reports of a company are available on the company’s website as well as on the stock exchanges.
The key areas of review in any quarterly and annual report include the revenues or sales, profit margins, outstanding debts, operating and non-operating income, depreciation, current and quick ratio analysis, debt coverage ratio, EPS, etc.
The quarterly results of a company are usually announced within 45 days from the end of the quarter.
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