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Алексей Житков

How to read company reports

The company's quarterly reports allow investors to see how a publicly traded company has performed in the last quarter. There are also annual and semi-annual reports, but here we will focus on quarterly earnings as they are likely to affect stock prices.


Why are the company's quarterly reports so important?

This is the best way to assess the financial condition and future of the company. And it is the most regular and consistent source of information available. Most companies publish income statements for the same period, that is, January, April, July and October. This means that both trading volume and volatility are likely to increase in these months. And it gives you a lot of trading opportunities!

While many companies provide forecasts or indicators of future earnings, investors also look to analysts for estimates. These estimates are often included in the stock price. The market tends to focus on whether a company meets, meets, or exceeds those expectations. As a result, the company's shares can fluctuate greatly on the day the income statement is published. It's not uncommon to see stocks go up or down by up to 20% these days!


How to read a company's quarterly reports as if you were Warren Buffett

Reading company reports can be like trying to get through War and Peace. They are long, boring, and full of conditions that might scare off anyone without an undergraduate degree in finance

But think of them as instructions from IKEA. They may look confusing at first, and it may take you several weeks to assemble a basic shelf for the first time. But once you put together a few pieces of furniture, you will feel like a professional DIY craftsman.

It's the same with company reports. While you won't become a financial analyst overnight, you can learn to look through them to extract the most important details. So here's a quick getting started guide that will show you what important metrics to watch, where to find them, and most importantly, how to interpret them.


1. Revenue

Whether you call it revenue, sales, or whatever else, revenue shows you the total turnover of a company. Or, to put it simply, the amount of money the company brought in in a quarter. If it is too low, it will be difficult for the company to cover the costs and expenses. So it is clear that investors would like to see annual growth here.


2. Net profit

This is what is left after the company has paid all costs, expenses and staff travel to Turkey. You will find it at the end of the income statement, right on the last line. This gives investors a good understanding of the company's operating performance and profitability relative to the competition.


3. EPS

EPS stands for Earnings Per Share. To calculate this metric, you simply need to divide the net income by the number of shares outstanding.

The higher the earnings per share, the more your stock will be worth as investors are willing to fork out for higher earnings. This is why investors often focus more on EPS than on profits.


4. Other indicators

The three metrics described above are important for any business. But there are also company or industry specific factors.

For example, for relatively young tech companies like twitter or snap, shareholders are more interested in growth than in earnings or EPS. Therefore, they focus on metrics such as daily active users. This helps them understand both the current market and the future potential of such companies.


All About Investor Expectations

Now that you know what the key metrics are in any company report, it's important to understand another crucial factor. The numbers themselves do not affect the stock price. A company can sometimes show double-digit revenue growth, but investors can still react by selling their shares.

Many of these expectations are set by analysts who are paid large salaries by banks and rating agencies to predict the future. These analysts will look into their crystal balls (and by that we mean combing through reports and analyzing data) to come up with their earnings forecast. By averaging all these forecasts, you get a “consensus forecast”.

Then, when the quarterly report comes out, investors don't just compare the numbers with last year's. They compare them to the expected numbers. If they exceed expectations, stocks are likely to rise. But if they are below forecast, you can bet there will be a sell-off in the security.


Personal company forecasts

You can also view the company's outlook, which is its own estimate of the next quarter's performance. Although according to the law of the computer