EARNING SEASON BEGINS - DON YOUR SHERLOCK CAP!

about 12 months ago
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By Ruma Dubey

It is that time of the quarter – results time! We will soon get submerged with numbers and this time around, we have to see Q4 as well as FY18 numbers – together they give solid information. Yes, estimations for the future can be made, provided the company gives all the relevant information.

For those who want just a glimpse at the performance, with no woods to burn, the published results or a quick read through the attached Press Release is enough. But if you have investments and need a much better insight, in most of the cases the Press Release and many a times, even the published results reveal little, leaving us to decipher where the loss or profit could have come from.

In majority of the companies, except maybe for a few like Infosys, Reliance Industries, Bharti Airtel, Tata Steel, TCS, Motherson Sumi, Mahindra & Mahindra or Cairn India; most companies present a very basic data. The usual practice is that if the company’s net profit has dropped, the company would mention nothing about it; it will only go on to wax eloquent about its rise in sales or EBITDA and leave it there for us to go and figure out the net profit. It’s almost a guarantee – if there is no mention of the net profit, there has been a fall. And then it is left up to us to figure out as to why the net profit fell – one is forced to scrutinize for exceptional expenses or rise in interest rate or depreciation, costs or some such factor. Many a times, it has been noticed that even in the Notes to Accounts, there is no mention of why profits fell. And then there are times when we suddenly see a spike up in net sales earned but no explanation whatsoever is given for the reason in this increase – maybe the new expanded facility has gone on stream or the loss making subsidiary has turned around or realisations have improved. We are left to wonder, look into the state of the sector in which it operates and then go figure.

Maybe as analysts and journalists we are equipped to analyse the numbers but what about the shareholders like you and me? We have to depend on the analysts, TV interviews of the management or newspaper articles to sometimes even come to know that net profit has fallen or why the net profit fell. Sometimes operating expenses rise and there is no explanation for why it rose, maybe a TV interview throws light about increased inventory costs or working capital or increase in the wage bill due to increased employee count.

And what about companies with operations abroad; usually we find little or no financial disclosures about their operations outside their home countries. If it is any consolation, this happens worldwide – 90 out of the 124 companies in Forbes list of the world’s biggest publicly traded companies, do not disclose the taxes they pay in foreign countries, while 54 disclose no information on their revenues in other countries.

Each company, as per its will and fancy decides to disclose information. SEBI did stipulate the need for quarterly results, which was the first big step towards transparency but there is no set format like the Form 10-K and 10-Q of SEC, USA. The annual report does have all the information but does that mean that a retail investor has to wait till end of the year to understand what really went wrong; if more details are presented, we could take a more informed decision.

Like the prescribed format of Form 10-K for Annual Report and Form 10-Q for quarterly numbers, SEBI should make it mandatory for companies to disclose detailed information even in quarterly performance. Maybe management commentary in published results, telling us about operations of the company in detail by usually comparing the current period versus prior period, would make a big difference – why do we need to depend on the TV interview to understand the numbers? Information about significant properties, physical assets of the company and even intellectual or intangible property could help one evaluate the net worth of the company. Insights into special operating costs, seasonal factors, volume growth, realization per unit should be made mandatory.

As the entire world becomes one big village on the cyberspace, the need for complete transparency is imperative. As such the retail investor is always short changed’ maybe it’s time for SEBI to really show its bite and claws.

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