All listed companies release quarter results according to SEBI guidelines. Stock prices fluctuate rapidly due to this. Stocks can be driven in green by a slight increase in sales, or they may fall several times after an increase in sales. After seeing the news flash on TV, it’s nearly impossible to analyse the quarterly results in one sitting.
In a quarterly report, there are key points that can be analysed.
- Gross Sales: This is essentially a percentage of the total sales.
- Net Sales: One can subtract sales return, sales allowances and sales discount from gross sale to get net sales.
- Operating expenses: A minimum amount of capital is required to run a business. This is basically the cost of running a company. Operating expenses include salaries of employees, legal fees, business license, and electricity.
- Operating Profit: After subtracting net sales from operating expenses, we get the operating profit (or Earnings before interest taxes depreciation or amortization).
- Net profit or net income: The income statement contains details about taxes and loan repayments, which are deducted from operating profits to give us the net profit.
The quarterly results of companies can help you to see many more important points. These key parameters can be examined and analyzed in the context of fundamental analysis. In the long-term, all these key numbers will reflect in share prices.
To judge the quarterly results for trading purposes, one must speculate on the market price. One should only focus on one thing: “expectation”. The wrong assumption is that profit equals price rise and loss equals price drop. Although there is no such rule, if the market expects a profit of 100 for Xyz Company, it will be higher than the previous quarter’s 200. Profit will decrease in this instance, but if the market expects 100 and the result is 150, it will respond accordingly.
The individual will decide if they view the quarter results in a long-term or short-term perspective. Whether one is betting on the price or looking at fundamentals, it all depends. One thing is certain, however: whether it takes a week, months or years, the effect of result will be reflected on share price.
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