August is the month when most publicly traded companies publish their annual results. Savvy investors need to cut the noise by focusing on how expectations match reality. Here’s what you need to know about the “confession season” of the stock market.
What is the season of the reports?
Throughout the reporting season, publicly traded companies keep the market informed about their performance. During this time, it is mandatory for companies listed on the Australian Securities Exchange (ASX) to share their earnings, results and forecasts with shareholders.
To ensure greater financial transparency, many companies organize conference calls to discuss their results and answer questions from market analysts and the media. Information released during the earnings season can also reveal useful details about trends in various industries and the pace of economic growth in general.
The published data is then compared to market analysts’ estimates ahead of the earnings season to determine how a company actually fared (relative to what the market expected it to do).
When should we arrive?
ASX-listed companies must report their results to shareholders at least twice a year: as half-yearly results, and later as annual results within two months of the end of their financial year.
Most locally listed companies have fiscal years ending June 30 and publish their annual results in August. Half-year results are generally published in February. Some companies with a December “year-end” will publish their half-year results in June in August.
The small number of companies with fiscal years ending in other months – such as September (e.g. ANZ, NAB, Westpac), March (Macquarie), July or February – will not appear in the August earnings season. .
A company’s website should contain information about the date of publication of its half-year and annual results.
Why is intercourse season important?
Reporting season is a great time to access the most recent information to assess a company’s financial health and strategic direction.
When a business’s full accounts are released during reporting season, you can gain insight into its actual health and financial performance, as well as its goals and prospects for the future. This includes visualizing its exposure to manageable levels of risk, internal cash flow, and seeing what dividends to expect (and if they are sustainable).
Reporting season also allows peer reviews to compare the activities of one company to others in the same industry and allows investors to compare performance while gaining insight into the strength of the wider industry.
It is important to know that the reporting season can cause additional volatility in the market. Companies can outperform or underperform the forecasts of market analysts, which can lead to unexpected movements in stock prices.
What’s in a financial report?
Financial reports are audited documents that contain financial statements describing a company’s performance up to the end of the reporting period, including:
Balance Sheet – This provides an overview of the financial condition of the business at the end of the reporting period, including a summary of the assets, liabilities and equity of the business.
Income statement (income statement) – This shows the financial performance of a business over an accounting period (typically 6 or 12 months). It provides the income and expenses of a business, allowing investors to assess the prospects for growth and profitability of the business.
Cash Flow Statement – It shows the level of free cash flow and capital expenditure of a business. These are generally divided into cash flows from operations, financing and investing.
Statement of Changes in Equity – The statement of equity balance shows how much shareholders are keeping in the business and any changes made during the reporting period.
Financial forecasts of turnover and results for the coming years.
Investor presentations can also be included. These can be useful in highlighting key strategic decisions for the business, such as growth and expansion plans, cost reduction measures, and merger and acquisition (M&A) business plans or of assignments.
Key points for investors to remember
Earnings season allows investors to take a detailed look at a company’s finances, but it also provides an opportunity to gain a better understanding of what the company actually does, how it makes money, its social or environmental impacts. (and how they’re managed), its place in the larger market, and its plans for future growth. Taking all of these micro and macro factors into account can help investors get a better idea of a business.
Remember that before investing in a business it is important to be aware of the risk you are taking, as past performance is no guarantee of future performance. The value of your stocks and your portfolio as a whole can fluctuate over time. By analyzing the fundamental drivers of a company’s performance and examining the company’s financial data during reporting season, you can be better informed before making a decision to buy or sell a particular stock.
Without a doubt, COVID-19 will continue to cast its shadow over nearly every bottom line as the various financial, consumer discretionary, real estate and utilities companies listed on the ASX report their financial numbers. The pandemic poses a threat to some and offers opportunities for others. The coming weeks will be great for revealing how these companies are positioned to face the current challenges posed by the Delta variant and how their businesses are responding.
Originally posted by Schroders