Reporting season – 4 key things to look for

Here we are, about to start week two of reporting season February 2016!

Don’t forget to check out the full wrap up from week one here.

This is a great time to look at a company’s half yearly and/or annual reports to see how they’re performing. Here are four key things to look for:

1.Is revenue growing or falling

One of the most important numbers to look at is revenue, and whether it’s growing or declining for the period. Using a real-life example, here is Navitas Limited’s (ASX: NVT) recently issued half yearly report:

In the profit and loss statement, you can see that Navitas stated its revenue as $518.71 million for the period ending 31 Dec 2015. You can also see the corresponding figure of $480.4 million for 31 Dec 2014. So, revenues have grown by 8% for the previous corresponding period (pcp). Growing revenues are good news.

2. Are earnings growing or falling

If you invest in a company, you want to know whether the company is profitable (earnings/profit) and whether these earnings are growing or falling. Let’s go back to Navitas’ recently issued half-yearly report:

The same profit and loss statement shows the company has grown its earnings from $31.3 million in 2014 to $45.1 million in 2015, that’s earnings growth of 43.8%. More good news for Navitas.

3. Cash flow trends

There is often a significant difference between the reported profit of a company and its actual cash flow.

Navitas stated reported earnings of $45.1 million in 2015, now let’s have a look at its actual cash flow to find its cash flow trend. This time, we need to look at the Navitas’ cash flow statement in the same report.

nvt cashflow

So, this highlights the difference between accounting earnings and actual cash flow. Let’s break it down like this:

Cash flow actitivy (millions)
Cash flows from operating actiivties 45.2
Cash flows from investing actitivies 15.2
Cash flows after investing actitivies 30
Dividends Paid (36.9)
Other Financing cash flows (0.43)
Foreign Exchange Effects (0.23)
Shortfall 7.56

The company started with $45.2 million from operating activities. When you subtract cash flow from investing, dividends paid, other financing cash flows and foreign exchange effects, the company is left with a shortfall (gap) of $7.56 million.

Further down the statement, if you add in the difference between the proceeds from borrowings, and the repayments of borrowings you will see that cash and cash equivalents actually fell $10.1 million for the period. That’s not necessarily a bad thing because it still has $74.6 million in the bank, but it’s a different picture to the earnings/profit.

4.Debt Trend

Lastly, we need to look at a company’s debt trend, its debt to cash, and its debt to equity to determine how much debt a company has and whether the debt is growing or declining. This requires examination of the company’s Statement of Financial Position (balance sheet).

Let’s go back to Navitas.

Their balance sheet shows that the company had $121.4 Million in debt at 31 December 2015, compared to $123.1 million in June of 2015, and $158.4 million in December 2014. So, the company has reduced its debt by 23% since the same time last year.


The company has $74.6 million in cash at 31 December 2015:



Plus, Equity of $225.4 million at 31 December 2015:


Therefore, the company has a strong balance sheet. If we subtract the cash from the debt ($121.4 million minus $74.6 million), we get $46.8 million.

This $46.8 million is then divided by the company’s equity ($225.4 million) to give us a debt to equity ratio of just 20%. A very strong position.

So, that all looks pretty healthy for Navitas, a shining light in the Vocational Education and Training sector, which so far this year has seen:

Intueri Education Group Ltd (ASX: IQE) being investigated and reports that the Fraud Squad Office was seeking information on one of its colleges, Vocation Ltd (ASX: VET) and Australian Careers Network Ltd (ASX: ACO) are both currently suspended from trading and, in a worst-case scenario, may never resume trading.

That reminds me, reporting season is a great time to check out these 3 Blue Chip Shares that look set to soar in 2016.

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Motley Fool contributor John Hopkins has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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