Reporting season is here, but what is it and why should you care?
The weeks ahead let investors take a peek behind the corporate curtain.
August marks the start of reporting season. It's when companies with a June 30 year-end publish their annual reports, giving shareholders a behind-the-scenes look at how a company has fared during the financial year as well as revealing the final dividend payment.
As the majority of Australians have their super in share-heavy 'balanced' funds, reporting season can also be relevant for retirement nest eggs.
What does an annual report contain?
You'll find a company's annual report in the 'Investor information' section of the company's website.
The report is divided into four main sections:
- The Directors' report
- The corporate governance statement - which explains company strategy and how the company is acting fairly and ethically.
- The financial report featuring the profit and loss statement, balance sheet and cashflow statement plus explanatory notes.
- The auditor's report, which states whether the accounts are accurate or if any issues were raised.
What to watch for this reporting season
Investors will undoubtedly head straight to the profit and loss statement to see if the business made money last financial year.
In an environment of rising interest rates, it's also worth diving into the balance sheet to know if the company has taken on more debt.
However, the downside of the financial statements is that they are a rear-vision look at a company's results.
To get a feel for how the company is likely to perform in the future, take a look through the Directors' Report, CEO's Report and the Chair's Report.
These discuss business performance as well as upcoming events or changes to the economy, that could impact the company, and its share price, in the future.
What are some of the big names to watch for?
With more than 2,000 companies listed on the ASX, reporting season can deliver a dose of information overload. Here are a few nig names to keep an eye out for.
- Commonwealth Bank - a goliath of both the sharemarket and Australia's banking sector, all eyes will be on CommBank's annual report, which was released today. Expected to be a bellwether of how the financial sector is handling rising interest rates, CommBank reported a $9.6 billion profit. The other major banks - Westpac, ANZ and NAB, all have a September 30 year-end. Investors will have to wait until October/November to see how CommBank's chief competitors have performed.
- CSL - CSL's US$11.7 billion (A$16.4 billion) acquisition of Vifor Pharma, which makes kidney disease and iron deficiency treatments, will bring diversity to CSL's business. It's sure to be discussed in the annual report published on August 17.
- Qantas - Australians are taking to the skies again. Will it be enough to turnaround Qantas's $1.83 billion loss in 2021? We'll find out when the airline publishes its results on August 25
- Woolworths - consumer staples tend to hold up well during tough times (we still have to eat, right?). But it will be interesting to see how the supermarket chain, and its discount department store Big W, has navigated rapidly rising costs and supply chain issues. Find out on August 25.
The trap to avoid
Annual reports don't make for light reading. CommBank's 2021 report extended to more than 300 pages.
It's not just about volume. Annual reports can be laden with eye-glazing accounting jargon.
Not surprisingly, a study by San Diego State University noted that investors may spend as little as 15 minutes skimming through annual reports, with their views on a company's financial health often shaped by glossy images.
The bottom line is to focus on the figures and formal commentary rather than the up-market photos.
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