Watch Out for Misleading

Have you ever read a corporation ' s quarterly earnings report that stated, " We had a terrible first three months. Prospects for our Company are turning down due to inefficiencies in the home office. Our competition just came out with a better product, which will adversely affect our sales. Furthermore, we are losing our shirt on the new midwestern Operation, which was a real blunder on management ' s part. "

No! Here ' s what you gape. " Greatshakes Corporation reports inscribe sales of $7. 2 million versus $6 million ( + 20 % ) for the property ended Walk 31. " If you own their stock, this is stupendous information. You certainly are not business to be disappointed. You hold this is a fine Company ( unalike you wouldn ' t own its stock ), and the report confirms your thinking. Is this document - breaking sales armouncement a first-class report? Rent ' s suppose the Company also had document earnings of $2. 10 per share of stock for the property. Is it unfluctuating better promptly?

What if the $2. 10 was versus $2 ( + 5 % ) per share in the corresponding volume the previous life span? Why were sales up 20 % and earnings ahead by oneself 5 %? Something might be wrong—rnaybe the company ' s profit margins are crumbling. At any degree, if you own the stock, you should be concerned and evaluate the Station closely to identify why the earnings larger isolated 5 %. Most investors are fascinated with what they read, and companies inclination to put their best neb forward. Steady though this corporation may have had all - time record sales, up 20 %, it didn ' t mean much. You must be able to see through slanted published presentations if you want the vital facts. The key factor for the winning investor must always be how much the current quarter ' s earnings are up in percentage terms from the same quarter the year before!

Let ' s say your Company discloses that sales climbed 10 % and net income advanced 12 %. This sounds good, but you shouldn ' t be concerned with the company ' s total net income. You don ' t own the whole organization. ou own shares of stock in the corporation. Perhaps the Company issued additional shares or there was other dilution of the common stock. Just because sales and total net income for the Company were up, the report still may not be favorable. Maybe earnings per share of common stock inched up only 2 % or 3 %.