4/19/2024

How to read a company’s quarterly report

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The market is once again entering the period of quarterly reports: streaming service Netflix has just reported profits, and next week traders are waiting for reports from companies such as Visa and Tesla. So let’s look at the importance of quarterly reports for financial analysts.

A quarterly report is a formalized document that provides a summary of a company’s financial data for a quarter (three months). In addition to quarterly results, these reports may also contain year-to-date and comparative results (for example, last year’s quarter versus this year’s quarter).

For most companies, the reporting period ends with a calendar year: December 31, and quarters end on March 31, June 30, September 30 and December 31. Quarterly reports are typically filed within a few weeks of the end of the quarter.

What do quarterly reports include?

Quarterly reports are a source of important financial information about a company’s performance, providing investors and other stakeholders with key accounting and financial indicators. These reports contain data on gross income, net profit, operating expenses and cash flow, allowing you to assess the current financial position and dynamics of the company.

In addition to publishing quarterly reports, companies often make presentations to investors and analysts. As part of these presentations, company management presents data on key performance indicators, highlighting achievements and plans for the future. These presentations are typically followed by question-and-answer periods where investors and analysts can seek clarification from company management.

Analysts that follow a company’s performance often issue forecasts for its future performance. These forecasts are averaged by financial publications to form consensus estimates.

Quarterly reporting requirements

Although the content of a quarterly report may vary depending on the specifics of the company, there are a number of common elements that are common to most.

The structure of a quarterly report usually includes:

  • Summary: description of the company’s highlights and achievements during the reporting period.
  • Goals and objectives: presentation of the goals set for the reporting period and assessment of their achievement.
  • Highlights: detailed description of the company’s most significant events and performance for the quarter.
  • New and current tasks.
  • Problems and strategies: if there are problems, describe the strategies the company is using or plans to use to solve them.
  • Comparative analysis: if data from previous quarterly reports is available, compare them with the current period.

Creating a quarterly report is a time-consuming process that may require in-depth research. To ensure that information is as complete as possible, financial and performance data are typically collected from a variety of sources.

Quarterly reports are valuable tools for investors and analysts, providing them with information about a company’s current state, performance and growth prospects.

Comparative analysis

Comparing and assessing trends in a company’s activities requires an integrated approach based on the analysis of data from various sources. One common method is to compare a company’s performance to the same period in the previous year. However, this approach may not always be correct, especially for companies operating in seasonal areas.

Some industries experience significant seasonality, resulting in uneven distribution of revenue and profits throughout the year. For many retail companies, the fourth quarter is the most profitable quarter, while the first quarter typically sees poor performance. In the construction industry, most of the work is carried out in the first three quarters, and the fourth quarter may be less active.

A quarterly earnings report, in addition to reflecting a company’s financial performance over the past period, often contains forward-looking “guidance” for the next few quarters or the rest of the year. These benchmarks provide important information to analysts and investors, allowing them to formulate their own expectations about a company’s future performance.

Forecasts and recommendations expressed by management and analysts can have a significant impact on the dynamics of the company’s stock prices during the quarter. If the company’s management provides guidance for the next quarter that is lower than investors’ expectations, this could lead to a drop in the stock price. On the contrary, a more optimistic forecast or an increase in independent estimates from analysts, as a rule, stimulates growth in quotations.

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