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How To Make Sense Or Analyze Quarterly Results Of A Company?
If a share is listed on the stock exchanges, then as per regulations of The Securities and Exchange Board of India (SEBI), the company is bound to declare quarterly results. Mostly quarterly results are declared for the quarter ending March 31, June 30, Sept 30 and Dec 31 of every quarter.
How To Compare, Analyze And Make Sense Of Quarterly Results?
What we suggest is took at the immediate quarter that the company has declared results and compare it with the previous quarter. Look for the following:
a) Improvement in sales
Look for any improvement in sales. If sales are improving gradually in the last few quarters, it is a good sign.
b) Look for volume growth
Look for volume growth. In some companies like FMCG it is very important to see if there is volume growth. If that has happened at least for the last few quarters, it is a sign of pick-up in demand.
c) See whether the profitability is not boosted by other income
If the profitability of a company is boosted by other income, it is certainly not good. Say for example, if a company has a net profit of Rs 800 crores and it includes profits from sale of land worth Rs 600 crores, it is not good. Profits should come purely from operations.
d) Look for EBIT Margins
Look for margin expansion, especially earnings before interest, depreciation and tax (EBIT). If the EBIT margin last quarter was 25 per cent and if the same if 22 per cent this quarter, it is a sign that margins are under pressure. This could be due to higher costs including input costs, increase in wages or lower realisations.
e) In case of banks look at non performing assets
In case of banks you must study the non performing assets. Non performing assets are given as a percentage of loans. Higher the amount of non performing assets, means it is bad results. What this means is that corporates and individuals are borrowing and not paying back.
This is a key ratio to look for when analyzing bank results.
f) Look for other key guidance from the management including currency headwinds, order book positions, attrition rate (particularly in the case of IT companies) and other key data that the management may share.
f) If you are analyzing a stock to buy and sell, then look at the EPS reported and then study key indicators.
To know how to buy analyze a stock and key indicators click here
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