How to analyse quarterly results statement

EBIDT Margins

Margins indicate how efficient the company has been in terms of utilising its resources. Look for margin expansion, especially earnings before interest, depreciation and tax (EBIDT). If the EBIDT 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.The important factor is that the company has to be consistent on the margin front. Higher fluctuations on the margin front showthat the company has been inconsistent in resources utilisation. As regards the growth in margins, any higher and sudden growth in margins needs to be watched closely. Any inventory gains and sudden decline in raw material prices should be moderated. However, if higher margins are sustainable, it is a positive factor.

PAT

While arriving at a profit after tax figure, there is one important factor known as the tax. Analysis of tax is very important. A few of the companies enjoy tax benefits for having manufacturing units in certain areas. If those tax holidays are over the taxation figures also impact the bottomline of companies. Though a rationalisation of taxation is under way, till the final implementation tax figures need to be analysed carefully. While analysing the PAT in quarterly results, we need to focus on PAT margins. Adjustment for minority shareholders should be watched closely.Further, any extraordinary income or losses should also be adjusted. Like,the profit from the sale of properties and sale of investments should be deducted. And, any extraordinary losses should also be adjusted accordingly.

As for earning per share (EPS), 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 the impact of the stock option or convertible securities).An increasing trend of EPS is a sign of a company performing well and generating profits.

Notes and Management Commentary

While the financial performance is one part, notes at the bottom of results statement should also be read carefully. Many a times few important adjustment are mentioned in notes -like the change in accounting policies, re-arrangement of figures, and investment value diminution. Further, any prior period adjustments are also mentioned.

Finally, it is the management commentary or conference all that makes an impact on share price. Like, in the recent case of Infosys June 2016 quarter results, the results managed to meet the street estimates. However, cut in guidance for FY17 as a whole from 11 percent to 8-9 percent resulted in weakness in stock price. Similar was the case with L&T in the previous quarter when it increased its guidance for order intake and stock was positive despite below street estimate results.

Above mentioned are few of the important aspects for quarterly results statement analysis. If it is followed with principles,it can provide a good opportunity to maximise profitability for the investors.

Author: PRAVEEN PATHIYIL

Passionate equity investor, Experienced in Indian stock market over a decade. Expertise in      forecasting trend. Speaker and writer about changing stock market and economic trends.

Founder of Pentad Securities, NSE, BSE Broker and Investment Advisor

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