Interpreting a quarterly report can be difficult for new investors, particularly those that have little
previous experience with a particular stock or company. A quarterly report is a critical document that
not only provides information about the recent performance of a company, but it can also help to
provide insights for predicting future performance.
Reports are designed to highlight the positives of a company, but they must also keep investors fully
informed. If you want to have a clear idea of how your investments are doing, then these are the five
key things that you need to look for in a quarterly report.
1: Earnings Per Share (EPS)
One of the most important measures of profitability, Earnings Per Share, is one of the first figures that
you should look for when viewing a quarterly report. EPS can be compared against other investments, to
determine which is more profitable, and past EPS figures can be compared to determine a growth or
shrinkage in profitability. EPS can also indicate how well the executive management team is performing
when it comes to making money for their shareholders.
2: Balance Sheet
The balance sheet is relatively simple and critically important. A company should be able to grow
revenue and earnings on a consistent basis. If either the top or bottom line is stagnating, then it could
be an indication that a company is having a problem reaching new customers and markets, which could
be bad news for investors. A change in the balance sheet could also be due to investments that a
company has made to grow their earnings, so the balance sheet should be taken into context with other
important indicators like the cash flow and outlook statement.
3: Accounts Receivable
Accounts receivable are important to look at, especially when you are comparing historical data.
Generally, sales revenue should exceed accounts receivable. A company that is unable to convert their
sales into cash could be leaving their operation open to unnecessary risk. If a company has fallen into a
quarter where the accounts receivable ledger is growing, the executives and board should offer a clear
plan on how they will collect on these accounts in the next quarter. Ideally, the growth of accounts
receivable should not grow at a faster rate than revenue for any given quarter.
4: Cash Flow
A high performing mature company should have a positive cash flow rate where they are taking in more
money than they are spending. For startups and growing companies, investments may sometimes erode
some of that positive cash flow. Positive cash flow is not in all cases an indicator of a sound investment,
but it’s another important factor to consider. Generally, a company worth investing in will not operate
at a loss for any extended period of time.
5: Guidance / Outlook Statement
Published quarterly results will provide an outlook statement that provides guidance for the next
quarter. This is essentially a breakdown of how the business executives see performance trending for
the next three months and into the long-term future. A guidance statement is an important way to
determine the internal confidence of a company. Outlook statements may also indicate whether a stock
is likely to increase or decrease in value, depending on what company the direction is taken.
However, investors should be aware that outlook statements often focus on positive predictions of
future performance and development, and are not guaranteed.
Bonus Tip: Look for Trends in Performance
Quarterly report reading is essential, but you can gain further insight by looking at historical data and
performance, which will help you to spot trends and predict future performance. Keep all quarterly
reports from your investments so that you can always go back and compare important data. Don’t just
look at the numbers here, but also compare quarterly guidance to see how stable a company’s
corporate structure is. Outlook statements that are inconsistent with performance can be an indicator
that a company is poorly managed or underperforming.
By understanding what’s in a quarterly report, and knowing which data to look for, investors can make
informed decisions whenever engaging in trade in the stock market.