(DK Aggarwal is the CMD of SMC Investment and Advisors)
Thus, quarterly earnings can only offer a brief guidance as to how the past has been, how the present is, and what the future is looking like. An investor should analyze income statements for trends to determine whether the company can become a good investment.
Investors can seek confirmation of an emerging trend from financial results, and use the income statement to spot trends that indicate the direction of future profits. Financial items including sales, revenue change over time, the patterns that make up the trends can be observed. Investors can analyse the financial statements over time to determine the trend and movement of various financial items such as assets and liabilities. The timeframe can be in months, quarters or financial years. Items on these financial statements can provide a company with valuable information on it about future performance.
The answer is partly ‘Yes’ and partly ‘No’. In order to accurately evaluate the financial health and long-term sustainability of a company, several financial metrics must be considered in tandem.
The dynamics of the stock market keeps on changing. Which is why analysing a stock becomes very important before one pours in one’s hard-earned money into it. A company’s ability to hit earnings estimates is important to the price of its stock. If a company exceeds expectations, it is usually rewarded with a hike in its share price. If a company falls short of expectations, or even if it just meets expectations, the stock price can take a beating.
Understanding a company’s margin ratios can be the starting point for further analysis to decide if a company would be a good investment option. Now the question is: “Do quarterly numbers always reflect true financial health of a company?”
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