Corporate earnings seasons

In simple terms

Listed companies in India report their financial results every quarter. Because they all report within set periods after each quarter ends, results arrive in waves known as earnings seasons. During these weeks, many share prices move sharply as investors compare results with expectations.

When companies report

India's financial year runs from April to March, so quarters end in June, September, December and March. SEBI's listing rules set how soon after each quarter companies must publish results, with a longer period for the full-year results. The exact deadlines are in the rules and can change.

Companies announce results through the stock exchanges, along with the board meeting outcome, and often a press release and an investor presentation. Large companies usually report earlier in the season; many smaller ones near the deadline.

Reading a results announcement

Look past the headline profit:

1. Revenue growth: how much came from volumes, prices, or acquisitions?
2. Margins: did operating profit grow faster or slower than revenue, and why?
3. One-off items: exceptional gains or losses, tax changes, write-backs. Remove them to see the underlying trend, as the quality of earnings lesson explains.
4. Segments: which businesses drove the result?
5. Standalone and consolidated figures: consolidated results include subsidiaries and are usually the better guide to the whole group.
6. Comparisons: compare with the same quarter last year to remove seasonal effects, and with the previous quarter to see the latest direction, as the growth lesson explains.

Estimates and guidance

Analyst estimates. Analysts publish forecasts, and data providers average them into a consensus, as the expectations lesson explains. Estimates are often revised during the quarter, frequently downwards as problems become visible.

Guidance. Some companies give formal guidance on revenue or margins; many in India prefer qualitative comments. Changes in guidance, or in the tone of comments, can move prices more than the quarter's numbers.

Earnings calls

After results, many companies hold earnings calls where management presents the results and answers analysts' questions. Recordings and transcripts are often published on the company's website and the exchanges. Useful things to listen for:

• Comments on demand, pricing and costs for the coming quarters.
• Answers to difficult questions, and questions that are avoided.
• Consistency with what management said in earlier calls.

The earnings cycle across the economy

Adding up results across many companies shows the earnings cycle: how the total profits of listed companies are growing or shrinking. Index-level earnings growth, compared with the index's level, gives its P/E ratio. Earnings tend to grow fastest in economic expansions and fall in slowdowns, especially for cyclical industries, as the economy and industries lesson explains.

Why it matters

Quarterly results are the most regular and detailed information investors get. Reading them carefully, past the headline and against the right comparisons, reveals how a business is really doing and guards against being misled by a "beat" or a "record".

Limitations

One quarter is a short period, and many businesses are seasonal or lumpy. Accounting choices, one-off items and acquisitions can distort comparisons. Consensus figures depend on which analysts are included.

Common mistakes

• Reacting to the headline profit without reading the details.
• Comparing with the previous quarter for a seasonal business.
• Treating a beat as proof of a good quarter.
• Ignoring the earnings call and management's outlook.

Try it yourself

1. Download a company's latest quarterly results from the exchange website.
2. Compare revenue, operating profit and net profit with the same quarter last year and with the previous quarter.
3. Find and remove any one-off items, and recalculate the profit growth.
4. Read or listen to the earnings call and note three comments about the outlook.