Investing basics: everything you need to know about reporting season
Reporting season can feel like a rollercoaster ride for investors. Emma Rapaport's latest Investing Basics article tells you important things you need to know to get through the month.
Reporting season can be a tricky time for investors, confronted with a deluge of information, heavy media coverage and rapid stock price movements. Here are some important things you need to know to get through the month.
What is reporting season?
Reporting season is a bit like the end of the school year but for companies. Like teachers issuing academic report cards to parents, twice a year Australian listed companies too must update shareholders about their financial performance.
Reporting season allows investors to look under the hood of companies they own, review their portfolios and search for bargains. Analysts also pore over the results, using them to validate prior assumptions and forecast future company performance.
Why is it all happening in August (and February)?
The ASX rules (listing rule 4.3A) stipulate companies must issue financial results to the market within two months of the end of their fiscal period end, and release of the balance sheet. The business balance sheet is a financial position snapshot, detailing what a business owns (assets), owes (liabilities), and shareholder equity.
As most companies have balance sheet dates set for 30 June, full-year results are generally released in August. Half-year results are typically released in February.
That's not to say all companies adhere to these dates, but most do. Notably, three of the big four banks – NAB, ANZ and Westpac – don't release half- or full-year reports in August.
Which companies will be reporting?
Of the more than 200 companies Morningstar equity analysts cover, around 170 will release earnings reports in August 2018.
Some big names have already reported, including AMP, CBA, Rio Tinto and AGL.
(ASX: RIO) Rio Tino - 1 August 2018 | Analyst video | 
Analyst report
(ASX: AMP) AMP Limited - 8 August 2018 | News article | Analyst report
(ASX: CBA) Commonwealth Bank - 8 August 2018 | News article | Analyst report
(ASX: AGL) AGL Energy Limited - 9 August 2018 | News article | Analyst report
Morningstar has complied a handy calendar of the companies preparing to release earnings results in coming weeks, so you can stay ahead of the news.
Which documents are released?
Listed companies will release several documents to the market via the Australian Securities Exchange. The primary document, known as the interim financial report, is often more than 100 pages long and will cover aspects of the company's finances including the statutory results and dividends.
Often, companies will also release an annual report – a structured document detailing a full suite of financial reports and commentary. A press release will likely accompany the report, featuring headline figures, key drivers, and management commentary.
Company management may present their results to shareholders live, alongside colourful PowerPoint presentations, and/or to equities analysts and journalists via conference calls.
Why does reporting season matter?
Reporting season can feel like a rollercoaster ride for investors, with fluctuations in stock prices arising from unexpected results. Share markets don't always react rationally to results. A company can report huge profits, but if they fall short of market expectations, the stock price may fall rapidly.
On the flip side, a market overreaction can create buying opportunities for investors, although Morningstar director of equity research, Adam Flack, says a myopic focus on the headline numbers can lead investors astray.
"There's a lot more to uncovering whether there's a buying or selling opportunity," he says. "Companies could report higher than expected profits, but it may have been a one-time item or short-term issue which is masking a long-term negative. The headline numbers don't always tell the whole story."
Ultimately, it's important for investors to stay on top of what's happening, get a sense of where the company is heading, and understand how the results will impact their portfolios.
More in this series
• Investing Basics: How do your savings compare to those of your peers?
Emma Rapaport is a reporter for Morningstar Australia.
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