How to read company reports like a pro

Your dictionary for earnings season

During earnings season, analysts and companies often sprinkle their sentences with confusing terms and jargon. Often these phrases aren’t even that complicated, you just have to know what they’re talking about.

In this article, we’ll explain the most important concepts so that you can quickly check all the terms you hear during earnings season.

Share buybacks (or repurchase)

Companies often announce that they’re buying their own shares, known as a buyback scheme or repurchasing. A company often does this to reward investors. If they buy back their own shares, the number of outstanding shares declines, so each share is theoretically worth more. It can also positively affect dividends. The company can now pay dividends on fewer shares, meaning the amount per share can be higher.

Acquisition

Companies sometimes buy other companies in order to grow in a certain sector. Through an acquisition, the purchasing company can directly access the expertise and market share of the acquired company. The buyer can also present the profit and revenue of the new company in its own earning report.

Earnings-per-share (EPS)

The EPS is earnings-per-share. It is calculated by dividing the company’s total profit by the number of shares outstanding. Investors can use the EPS figures to determine how profitable a company is and whether it changes over time. Are you curious about the EPS of a particular stock on BUX Zero? Take a look at the statistics on every stock in the app. 

EBIT

EBIT stands for earnings before interest and tax. In other words, how much profit a company makes before they pay tax and interest on it.

Equity and cash

The calculation for equity is very simple. A company adds up all its assets and subtracts its debts. Whatever is left is called ‘equity.’ Cash is part of equity, which is the immediate funds the company has access to. A company might use this cash to pay for an acquisition or make other investments.

Ex-dividend date

To qualify for a company’s next dividend payment, you must be a shareholder before the ex-dividend date. It’s like a cut-off date. If you buy shares on or after this date, you will not receive the next dividend payment. If you invest with BUX Zero in a stock that pays a dividend, the ex-dividend date is listed in the stock’s statistics in the app.

Dividend yield

Dividend yield is a company’s dividend divided by the price of a stock. This percentage shows how much dividend a company pays out each year relative to its share price. This allows you to see whether a stock pays a high percentage of its profit as a dividend. Of course, this doesn’t necessarily mean that buying the stock is a good investment. You can also check out a stock’s dividend yield by looking at the statistics in the BUX Zero app.

Market capitalisation

Market capitalisation is the overall market value of a company. You calculate this by multiplying the price of a share by the number of outstanding shares. Let’s say a company has 10 million shares, which cost $100 each. Then its market cap is $1 trillion. Market capitalisation allows investors to compare the stock market value of various companies. The market cap is also listed in the stock statistics in the app.

Cash flow

Cash flow is the inflow and outflow of money within a company. You can see from the cashflow whether a company has a healthy financial management. If more money goes out than comes in, then a company is in deficit. That can have consequences for a company that wants to borrow money, for example. With financing, a bank or other lender often wants a guarantee from a company that it will generate enough money to be able to repay the loan and interest.

Like-for-like sales

Often referred to as ‘comparable sales,’ this is a concept you often see from retail companies like Starbucks or Zara. Let’s say a large chain like Zara opens up a hundred branches in a year, then you can’t compare the sales of one year to the previous year. In order to get a good comparison, we instead compare the sales using a calculation based on the same number of stores.

Turnover, profit and loss

Turnover is the total value of all sales within a certain period. If you deduct all returned goods, discounts and complaints about services, you’re left with ‘net turnover.’ To figure out if a company has made a profit or a loss, simply subtract the costs from the turnover.

Revenue

Revenue is the amount of money a company has generated from the sale of goods or services. As an investor, you can see whether a company’s revenue rises or falls over time, and how that compares to other companies. Revenue is not to be confused with profit. This is revenue minus costs. You can also check out the revenue of a company on BUX Zero in the stock statistics.

Outlook

Companies often include an outlook in their annual or quarterly reports. This is a preview of the future, where the company outlines how much profit or turnover it expects to make in the following quarters, and how they expect to achieve it.

A positive or negative outlook helps investors determine whether they should buy, sell or hold stock in a company. Companies may also adjust their expectations ahead of an earnings call. For example, they might issue a profit warning if they fail to achieve a target.

P/E ratio

The price-to-earnings ratio is the ratio between the price of a company’s stock and the profit that company makes. The P/E ratio is calculated by dividing the share price by the earnings-per-share (EPS). By comparing the P/E ratios of companies within an industry, you can find out whether a company is undervalued or overvalued. You can also compare this handy number in the BUX Zero app.

If you’ve read this far, you’re all set for our next article. We’ll take a look at what seasoned investors pay attention to during the announcement of company figures.

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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.

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