What is Reporting Season?
Regulations in Australia require companies listed on the ASX to report their earnings at least twice a year. All ASX listed companies follow this guidance and release their financial results within 2 months of the end of their balance sheet period. Companies generally release their annual reports in February and their interim (half-yearly) reports in August. Some companies with different balance sheet periods may report their results in different months. Some companies also release additional information such as quarterly results or additional guidance, however, these are not mandatory and can be released at the company’s will.
Typically, ASX-listed companies will release a preliminary report within weeks of the end of their balance sheet period. This is followed by an annual report which has been audited by an independent auditor. Companies also typically host a results presentation where upper management will conduct a conference call, answering questions to analysts, investors, and the media.
What Information is Disclosed in Financial Reports?
Financial reports contain important information about the company’s past performance and projected future performance. Some information included that can be found in company reports include:
- Financial statements outlining the company’s performance up to the end of their balance sheet period
- Balance sheet – provides a snapshot of the company’s financial position at the end of a period. Includes a snapshot of the company’s assets, liabilities and shareholder’s equity.
- Income statement (P&L statement) – Shows a company’s financial performance over an accounting period (usually over 6 or 12 months). Provides a company’s revenue and expenses, allowing investors to gauge the company’s growth and profitability.
- Cash flow statement – shows the cash inflows and cash outflows of running the company. Cash flows are typically broken into cash flows from operations, cash flows from financing and cash flows from investing. They outline information regarding the company’s cash inflows and cash outflows. Investors can gauge the company’s level of free cash flows and capital expenditures.
- Statement of changes in owners’ equity – shows the beginning equity plus any retained earnings minus dividends paid out. The equity balance shows how much equity shareholders maintain in the company.
- Financial forecasts of revenue and earnings for upcoming financial year(s)
- The investor presentation can also highlight key strategic decisions for the company such as:
- Growth and expansion plans
- Cost cutting measures
- Plans for M&A activity or divestments
Why is it Relevant for Investors?
Financial reports are essential for analysts and investors to understand a company. They provide market participants with an objective way to track the performance of a company analysing how it generates revenue, how it spends its cash flows, and what are management’s future plans. The regulations and accounting rules ensure companies provide an honest snapshot of their finances and operations and the numbers are audited by an independent third party to validate the findings.
Reporting season is typically a period of higher volatility as new news will need to be digested by the market in the form of price action. Investors should use the reports to reanalyse their investments based on the more updated information.
The Decreasing Relevance of Reporting Season?
In recent years, many investors believe that reporting seasons are decreasing in relevance and significance. In our modern world, information about companies and their developments typically reaches investors instantly thereby allowing investors to be more up to date with information. Companies are required to disclose any market-moving information to the ASX, where such information will be published in the form of market updates or announcements. Since the reporting season is usually associated with reporting events and financial information that has occurred in the last six months, many investors will already be updated with information about their companies.
Despite this, reporting season is still very relevant and important for a few main reasons:
- It allows investors to see a complete picture of the company’s operations
- Many companies do not provide investors with monthly or quarterly updates. For these companies, reporting season uncovers a significant amount of information for investors to unpack
- Investors can discover the performance of other companies. This allows investors to gauge the performance of other businesses in the same industry and compare the financial performance of their holdings.
- It gives investors a more objective look at the company’s financials. This allows investors to answer questions such as:
- How is the company’s financial health?
- What are the levels of risk associated with leverage?
- Are dividends sustainable?
- Are the company’s growth plans achievable?
Actionable Ideas for Reporting Season
Investors can gain access to reporting season calendars online, and these provide information and highlight the dates of all ASX200 companies reporting their results. The reporting season calendar will also provide analysts’ consensus estimates for the revenue and EPS of reporting companies. Investors should use the reporting season as an opportunity to reassess their portfolios and determine whether companies are performing as expected.
Below is an image, obtained on the Commonwealth Bank Website, of a scheduled reporting season calendar:
Some Questions Investors Should Consider:
- Are revenue and earnings in line with previous projections and analysts’ estimates?
- Is the company’s balance sheet strong?
- Does the previously held investment thesis still hold?
- Does a growth company continue to grow its revenue?
- Does an income providing company continue to grow its dividend at a reasonable and sustainable rate?
- Is the company diluting shares?
- Does the company continue to generate strong free cash flows?
- Is the company investing in capital expenditure and research and development to stay ahead of competitors?
- How did the competitors perform in the same period?
As a wrap, reporting season gives investors an excellent opportunity to answer some of the above-mentioned questions and always gives investors a reason to rebalance their portfolios according to their personal investment objectives, as well as the strength of their chosen investments.