scorecardresearchIT sector Q3 earnings: 3 things you must check in results before investing in stocks

IT sector Q3 earnings: 3 things you must check in results before investing in stocks

Updated: 18 Jan 2023, 12:43 PM IST
TL;DR.
  • If the company’s results excite you, and you are looking forward to investing, let’s dive deep into how the quality of earnings might affect your investment decisions.
TCS reported a consolidated net profit of  <span class='webrupee'>₹</span>10,846 crore, up 4 percent sequentially while the company's consolidated revenue for the December quarter was up 5.8 percent QoQ to  <span class='webrupee'>₹</span>58,229 crore.

TCS reported a consolidated net profit of 10,846 crore, up 4 percent sequentially while the company's consolidated revenue for the December quarter was up 5.8 percent QoQ to 58,229 crore.

It feels great to see a significant growth in a sector or company you have invested in. But, do you know, as a retail investor, what aspects of their quarterly results matter to you the most? You must have invested in companies so that they can increase your wealth passively, but how would you know that they are performing well?

In this article, we will understand the things that you should focus on while looking at the company's results.

Quality of earning

Earning quality of the company is crucial to understand before making an investment as it means an evaluation of the company’s earnings after removing all the distortions, anomalies, and accounting tricks that might show an increase in revenue or profit which could be merely due to a one-time event.

It is a professional or an expert’s task to assess but you can also conclude it by looking at some scenarios as a smart investor. Situations such as an increase in revenue but an unreasonably high increase in costs, declining revenue might compromise your financial wealth.

Return on equity

Return on equity can give you a better idea and a validation of data which is passed by the “quality of earning” method. Return on equity is a method of calculating what returns shareholders get over a period of time. The formula to calculate it is:

Net income/shareholders’ equity

The formula can be furthermore broken down into pieces according to the requirement of the shareholder. This formula helps you in understanding the consistency of returns the company has given to its shareholders over a period of time. If the company has given consistent returns on equity, you might assume that accounting is not modified by showing one-time events of profitability and other anomalies.

Revenue and profit growth

Revenue and net profit growth is the first thing that we see on the internet when a company shows its results, which is reasonable enough to look at as it is a tool through which we can compare a company with its peers. IT companies have recently announced their results for the quarter ending in December 2022.

TCS reported a consolidated net profit of 10,846 crore, up 4 percent sequentially while the company's consolidated revenue for the December quarter was up 5.8 percent QoQ to 58,229 crore.

HCL Tech's revenue increased by 5 percent sequentially for the quarter while it showed a 19 percent increase in the net profit YoY.

Wipro's consolidated revenue for the quarter that ended December has increased by 14.3 percent YoY and the net profit increased by 2.8 percent YoY.

Infosys showed a 20.1 percent rise in its consolidated revenue for the quarter and a 13.4 percent rise in the net profit YoY for the same quarter.

Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com

Article
How to choose the right stock
First Published: 18 Jan 2023, 12:43 PM IST