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It's reporting season again, which means ASX listed businesses will be telling the market how they have performed over the last 6 months.
In Australia, we do it a little differently. In the US this is a quarterly event, but in Australia investors only get 2 opportunities a year to deep dive into the financials of the companies they own and to find new opportunities.
Our financial year ends on 30 June but businesses have 2 months after the financial year to get their books in order. As such, the main reporting season takes place in August and companies need a couple of months to get their results ready.
Australia also has half-yearly results in February for the period up to 31 December.
How the share price will react depends on the long-term outlook and how the market was expecting the business to grow. This means strong growth could still see a falling share price if the market was expecting stronger figures. On the opposite end, a poor financial result could see a share price rise simply because it wasn't as bad as the market expected.
For our top picks, we compared our Finder partners using a proprietary algorithm beginning in August 2022. We update the list every 3 months. Keep in mind our top picks may not be the best for your individual circumstances and we encourage you to compare for yourself. Read our full methodology here to find out more.
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Michael Gable Managing Director, Fairmont Equities
I will be focusing on resource stocks in 2023 due to demand for commodities, supply constraints, and a falling US dollar. Gold should also do well, but investors need to remember that it is not a hedge or a long-term investment. You only hold it when the US dollar is falling. That should happen during 2023 but don't fall in love with it, you need to trade it and remain nimble.
It's a report that publicly listed companies release every quarter to give shareholders and stakeholders information about how they're performing compared to their previous report. It covers income, per share and sales.
How do I read a full-year report?
There's some jargon mixed into the report, so it can be difficult to understand what it is you're looking at and how it can be useful for you. In the report, you'll likely find the following information and statements.
Income statement. This tells you the company's revenue and expenses over the period, as well as gains and losses of assets.
Balance sheet. It's a statement of a company's assets, liabilities and shareholder equity. It gives you a good indication of what the company owns and what it owes at a specific time.
Cashflow statement. This covers the inflow of cash to a company from its operations, investments and financing.
A brief discussion of the results. This is typically from high-level management.
Information about any expected market risks. This would be anything that might cause the company to make losses of some kind.
Income statement
The income statement gives you a look at the revenue and expenses of the company. This includes operating revenue (the revenue made from primary activities), non-operating revenue (the revenue made from non-core business activities, such as interest from capital) and gains (the money made from the sale of long-term assets, like a vehicle).
"Revenue" doesn't mean the money net profits. For example, a television production company might recognise the revenue from a TV series when the first episode is aired, as they are almost certainly going to receive payment for it, but they won't be paid the cash for it until the full series has been aired.
The expenses are the costs of the business to operate. This includes the cost of goods sold, depreciation, amortisation, administrative expenses, employee wages, commissions and utilities.
Watch out for the terms "gross" and "net" that indicate the calculation made. Gross is all the money received while net is the gross revenue minus any expenses.
Depreciation and amortisation
Depreciation is a method of allocating the cost of an asset over its useful life. It's like buying a car you know you'll use for 5 years for $1,000 and saying, "It's basically $200 per year."
Amortisation is a technique used to lower the value of a loan or intangible asset (an asset that isn't physical, but is still valuable) over a set period, such as to spread out loan payments. In reference to assets, it's where you expense the cost of an intangible asset over the projected life of it.
Balance sheet
The balance sheet is a snapshot of a company's assets and liabilities at 1 period. It doesn't show this over time, so you'd want to compare it with previous balance sheets if you want an idea of trends over time.
This will have the value of any assets the company owns, such as factory equipment and vehicles. It includes cash, equity and accounts receivable (what is owed to the company).
You'll also see the liabilities, which is money that the company owes, such as bills, debts and salaries.
The final item you'll see on the balance sheet is shareholder equity, which is the assets minus the liabilities. This is the amount due to the shareholders or owners of the business. This is either kept to be reinvested into the business or is paid to shareholders as dividends.
Cashflow statement
This is the actual movement of cash into and out of the business. In our example of a TV production company above, the revenue would be accounted for when the first episode is aired, but the cash won't go into the company bank account until the final episode airs. This varies from one show to the next, but Friends had 24 episodes per season, which could have amounted to 6 months.
This allows you to check that the business has enough cash flowing into the company to be sustainable. If a company doesn't have enough coming in to cover its operating costs, it won't be able to grow.
Why does the report matter?
The report can give you some great insight into the performance of a company. It lets you take a peek at the numbers behind the company to allow you to make a decision. As the companies aren't able to falsify this information, you essentially get a backstage look at them without any marketing, although they often release a presentation.
However, try not to get too invested in the details of these reports. Otherwise you'll spend a huge amount of time researching stocks. Find some of the key factors that are important to you.
Bottom line
While reports aren't much fun to look at and some might even say, "gross", it's worth checking a few to get your head around what you're looking at. Try to see if you can find some of the above details in them and compare some factors. Eventually, you'll become pro at understanding the ins and outs of the financials of a company.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.
Cameron Micallef is a utilities writer for Finder. He has previously worked on titles including Smart Property Investment, nestegg and Investor Daily, reporting across superannuation, property and investments. Cameron has a Bachelor of Communication and Media Studies/ Commerce from the University of Wollongong. Outside of work Cameron is passionate about all things sports and travel.
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