What is behind the numerous figures of the quarterly reports
Investors need to get an idea of what is behind the numerous figures of the quarterly reports. It can be hard for an inexperienced investor to understand the point of this obscure paperwork. The first thing to take note of here is the company’s profit, i.e. the bottom line of the income statement called net income. Net income is whatever is left after a company gets all the receivables due and pays off all the bills. Now we will concentrate on the simplified example of Amazon.com statement. Different companies may have differently structured statements but as a rule all the reports comprise the same items that can be utilized for the analysis of quarterly reports to define how attractive the stock is for investment.
Income statements can give some idea (of great importance for investors) of the potential of the company and its ability to turn in a profit. Who cares about the company that may go bankrupt in a couple of years? Before investing in any publicly traded company it is important to assess the real value of its business. Investors need some standards to guide them in assessing the company’s results and long-term prospects. Investors usually make use of such ratios as price/earnings and price/ profit growth rate. Most of information for the analysis can be obtained from the company’s quarterly report (10-Q).
We are getting closer to the figure from the bottom of the income statement. When a company says its “profit” is -$0.25 per share, it means it suffered losses in the quarter. The company cashed clients’ checks and receivables from prior periods, sold off inventory excesses, paid staff salaries and marketing expenses, covered its lease payments for warehouse premises, etc. And all the expenses that have not been covered represent the liabilities of the company. The company has not yet paid the electricity bill and will have to take out a loan to do it. Dividing the debt amount by the number of shares outstanding will yield $0.25, which is the loss amount per share.
It is common knowledge one has to spend money to make money. Amazon.com’s investors expect the company to make prudent use of its funds and increase the efficiency of its operations in a while. Then it will require less investment in the modernization of its technological base, in the inventory management, staff compensation, and maybe the electricity bills will disappear as the company will be able to acquire a power plant of its own.
Shareholders hope their loyalty will be rewarded with high income figures. And finance reports are the documents that can provide the basis for assessment of how justified these expectations are.