What to look for in a quarterly report

For investors
min read

You don’t have to be a financial wizard or business analyst to understand a quarterly report, but it does help knowing what to look for.

What to look for in a quarterly report

For investors
min read

You don’t have to be a financial wizard or business analyst to understand a quarterly report, but it does help knowing what to look for.

Scrolling through the ASX or navigating multiple investor portals is difficult enough when there is a lengthy report waiting for you on the other side. If you know what you’re looking for upfront, it is much easier to distinguish an important cue from noise. 

Here are the key elements and numbers you should look for when reading a quarterly report, with the goal of reaffirming your reason for investing in the company in the first place. 

1. Executive summary 

While management will most likely put the financials most favourable to the company in this section, it is a good place to find key numbers upfront which are not surrounded by too much information. In this section the company may also mention extraordinary events which have affected top line growth (e.g. merger or acquisition).

2. “Top line” growth

Top line growth is an important data point for seeing improvement overtime. There are two ways the top line can grow; by an increase in client volume, or by increasing price for current clients. Top line growth is a good indicator of an increase in share price, however you might want to find out what type of growth is causing the top line to move. 

3. “Net profit” growth

The net profit growth, or profit after tax, is an important number for investors to pay high attention to and may have an impact on share price movement. 

As an investor, you might want to find out why there has been a decrease or increase in net profit as this may determine your future investment decisions. 

4. Challenges experienced in the last quarter

No one likes admitting to faults but it is even worse when you don’t know what they are! If a company details the challenges experienced in the last year or quarter it shows that they are aware of areas which need improvement and may also provide an explanation for changes in profit margins. 

The company will sometimes provide “guidance” which detail future plans and priorities set forth by management in the quarter or year to come. This helps investors understand the strategy the company is trying to implement as well as giving them a way to measure if the company followed through with the last guidance they provided. Look for language such as “[Company] expects…”

5. Revenue quarter-on-quarter (QOQ) or year-on-year (YOY)

Revenue QOQ or YOY is a key indicator of if the company is making money. These numbers can have an impact on the share price reaction depending on how the profits underperformed or outperformed the estimates. 

For seasonal (commodity) stocks, it is often more relevant to look at YOY growth, however in highly competitive industries including telecommunications and enterprise technology, QOQ is relevant as the results may change more rapidly. It depends on the companies you invest in. 

6. People

No one has a better idea of the direction of the business than the people running the business. Often in quarterly reports or adjoining press releases, listed companies will provide quotes or management interviews from the executive team. These can help provide insight into the company trajectory, organisational culture and company goals. 

Consider how you engage with the companies or, more importantly, the people you invest in. Are you satisfied with their communication with investors? Have your questions been answered in the quarterly report?

Have two-way communication with the companies you invest in. See latest announcements, view share price and send questions directly to the board members on Diolog. 

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