Reporting season is in full swing as hundreds of ASX companies release their latest results. Most companies are releasing half-year results, covering the period between July and December 2019.
Reporting provides an opportunity for investors to test companies' performance, with stakes high this season given the strong performance of the share market.
The S&P/ASX 200 Index (INDEXASX: XJO) has hit a number of record highs this year already, following on from 2019's results when the ASX gave its best annual performance in a decade. But risks remain, with the impacts of the bushfires and coronavirus yet to play out fully.
So, here we take a look at things to watch for this ASX reporting season.
Dividends
Dividends are particularly important in the current low interest rate environment where many ASX investors are turning to shares to provide returns. Companies that can maintain or increase dividends are likely to be rewarded, while those that cut dividends are likely to be less popular.
BHP Group Ltd (ASX: BHP) lifted its interim dividend by 18% this week to 65 US cents per share and saw its share price rise from $38.48 to $38.88 over the course of Tuesday.
Profits and earnings
Whether a company improves profits and earnings has less impact than whether the company meets analysts' expectations for profits and earnings. Companies can deliver strong earnings and profit growth but still see a share price fall where reported earnings and profits fall short of market expectations. A company that delivers a loss may nonetheless see its share price improve if the loss was less than expected or if analysts expect future profitability.
Westpac Banking Corp (ASX: WBC) warned the market that its FY20 earnings and growth were under threat on Wednesday and saw its shares close down at $25.61 having started the day at $25.75. When Appen Ltd (ASX: APX) upped its earnings guidance by 11% late last year its shares surged 13% in response.
Future expectations
Companies often give guidance around their outlook going forward which can inform investor expectations of future performance. Upbeat guidance can see share prices increase as investors expect strong future returns. By contrast, downbeat guidance can lead to share price falls as investors revise their expectations of future performance downwards.
JB Hi Fi Limited (ASX: JBH) increased its FY20 sales guidance this month, upping expected sales from ~$7.25 billion to ~$7.33 billion. Shares in the electronics retailer surged more than 10%.
Foolish takeaway
Share pricing is based on the future cash flows a shareholder can expect. When these expectations change (for better or worse) you can expect this to be reflected by a change in the share price.
