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Yogi Zone

Useful articles for your finance management by our team of experts

how to analyze quarterly financial results of a company

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Now, Q1 FY14 results season has kick started. Let us start analyzing performance of stocks from our portfolio and stocks you are interested to

invest for long term

. Maintaining record of quarterly performance helps us to analyse trend and we can observe seasonality (if any) in the performance. 6 key parameters to analyze in quarterly results are as follows:

 

Gross and net sales

Gross sales represent total income earned through all sales proceeds during the period. It is also known as “top line” number in the results. Net sales are derived by reducing cost of sales return, sales discount, etc. from gross sales. Other operating income is added to net income, which derives total income from operations in the quarterly results.

 

Maintain records of historical sales figure for the quarter in excel and update quarterly results to analyze top-line performance of these stocks. Also, at year end, we can analyze how each quarter performed (contributed) as percentage of full year of sales.

 

Given below is a snapshot of quarterly trend for Titan Industries Ltd. to understand:

 

quarterly performance of titan industries

 

Operating Expense and EBITDA Margins

Costs incurred to carry out organizations’ day-to-day expenses, but not associated with production are known as operating expenses. These expenses include employee salaries and wages, power and fuel cost, advertising, transportation, etc.  After deducting operating expenses from total sales, we derive at earnings before interest, tax, depreciation and amortization (EBITDA). We calculate EBITDA margins by dividing EBITDA with the company’s total revenue for the quarter. Higher the EBITDA margin, better it is for investment.

 

EBITDA Titan

 

Depreciation and Interest Cost

Deduct depreciation cost to arrive at earnings before interest and tax (EBIT). Capture details of depreciation cost in each quarter. In case there is increase or decrease in depreciation cost, then ask the management the reason for it. Increase / decrease in assets or change in depreciation technique will have impact on depreciation costs. Similarly, if there is increase or decrease in short / long term debt, then interest costs will fluctuate. So, in quarterly performance analyze reason for drastic change in interest costs if any.

 

 

Net Profit/Loss and Net Margins

In income statement, after deducting tax from EBIT, we arrive at net profit / loss numbers. The net profit / loss are also popular as “bottom line” among investors. EBIT margin is calculated by dividing EBIT with the company’s total revenue. Analyze relation between interest cost, depreciation expenses and EBIT margin of the company. When interest cost and depreciation expense of company declines then EBIT margin of company will expand or vice-versa.

 

Earnings per share (EPS)

In quarterly results, we see basic EPS and diluted EPS. Basic EPS is the total earnings per share based on the number of shares outstanding. Diluted EPS is a company’s earnings per share calculated using fully diluted shares outstanding (includes impact of stock option or convertible securities). Increasing trend of EPS is a sign of a company performing well and generating profits. In Q4FY12, profits of the company were under stress due to which EPS registered marginal drop as we can see in below given table:

 

Quarterly Performance: Titan Industries Ltd.

FY12

 

Q1

Q2

Q3

Q4

Basic and diluted EPS (Rs)

1.76

2.03

2.3

2.08

 

Segment results

Companies with presence in various segments provide segmental results to its investors in quarterly results. Maintain record of those financials in your quarterly excel sheet and analyze which segment is contributing most to top-line, respective EBIT margins and capital employed.

 

Titan Segmentwise Results

 

Conclusion

When quarterly results are declared, stock market reacts to it and there is volatility in price. It’s recommended you don’t take a decision to buy or sell particular stocks based only on quarterly performance. There are other factors like company policies, macro/micro economic factors, management transparency, annual financial guidance, fundamentals of the company, etc. which you need for

stock analysis

. Only then take a call to invest or exit from any particular company’s stock. These 6 key parameters should help in showcasing the trend in company’s performance.

 

About the Author:

Hiral Thanawala is a PGDM (Finance) graduate and Certified Financial Planner with an experience of over 5 years in equity market and personal finance domain. The views explained by him are personal.

He can be reached at

expert@investmentyogi.com


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