Companies often exclude things from their earnings. For example, a
manufacturing company might exclude the money it spent to settle a lawsuit
or the gain it made by selling a factory. You might hear these exclusions
called unusual items, special items, or extraordinary items. If the company
says it excludes these items from its earnings, the analysts who follow the
company probably do the same (and so should you). Most companies that
exclude items from their earnings will present the adjusted profit number in
a table. However, some companies will make you do the calculations. If all
this sounds like work, you heard right. Remember, if investing were easy,
everyone would do it, and everyone would develop confidence in their stock
analysis. But don’t worry, the job isn’t as tough it sounds—and the actual
math is simple.
As long as you’ve got the earnings release in front of you, grab the
quarterly sales numbers as well. Don’t worry, you won’t have to exclude
anything from sales.
Calculating operating cash flow requires some extra steps. For one thing,
not all companies present a statement of cash flows in their earnings
releases. If yours doesn’t, you’ll have to dig a little deeper and check out the
SEC filings. Just about every company will either provide the filings on their
own website or offer links to a third-party site that stores them. To obtain
quarterly data, access the Form 10-Q.
After you collect the cash-flow data for the year-ago quarter, you’re
nearly there. To finish the job, download the earnings release or 10-Q from
the quarter immediately before the one you just checked. For instance, if
you’re looking at the June quarter, pull the March-quarter numbers as well.
While Yahoo! Finance presents cash flow from the four most recent
quarters in a quarterly format, most other websites—as well as official
statements of cash flows prepared by the companies themselves—present
data progressively. In other words, if a company generates $100 million in
operating cash flow in the first quarter and $80 million in the second
quarter, the second-quarter statement of cash flows will list an operating
cash flow of $180 million—the sum of the first two quarters. Unless you
start out with the cash flow for the first quarter of a company’s fiscal year,
you’ll need to subtract the value from the previous quarter’s statement to
obtain a true quarterly number.
Now that you have enough data to calculate the most recent quarter’s
growth, next up is trailing 12-month growth. Essentially, repeat the
previous steps—find quarterly earnings, sales, cash flow, and prior year
earnings data—until you’ve collected four quarters, worth of data for each
statistic. Sum the quarterly numbers, and you have all you need to calculate
trailing 12-month growth.
Now collect the data necessary for calculating four-year annualized
growth. While calculating four-year growth requires you to go even farther
back, annual data requires a lot less work to obtain.
To collect per-share earnings data, download company earnings releases
for the fourth quarter of the last fiscal year and for the fourth quarter of the
fiscal year from four years earlier. For instance, if the company’s last fiscal
year ended in 2012, you’ll need annual data from fiscal 2008. Find the
numbers that exclude all the special items, then record those profits.
Sales and cash flow are even easier. For this stage of the process, visit
money.msn.com/investing. Why the MSN site? Because it provides five
years of annual data, which neither Yahoo! Finance nor Google Finance
Start with the income statement. Choose the option for annual data and
grab the sales numbers. After you’ve gleaned your sales data, move to the
cash-flow statement for operating cash flow. Now you’ve collected all you
need for the historical growth rates.
Last, you can find everything you need for the estimated current-year,
estimated next-year, and estimated five-year annualized growth rates in
Visit the analyst estimate page for your stock at Yahoo! Finance or MSN
Money and select the following numbers:
The per-share-profit estimate for the current fiscal year.
Estimated per-share profits for the next fiscal year.
Per-share profits for the last fiscal year.
Growth rate for the next five years.
After you have collected all of these numbers, stop for a minute and pat
yourself on the back. You’re not done, but the most time-consuming job is
behind you. You’ve already tackled more stock analysis than most investors
ever will. Finish doing your research on a few stocks, and you won’t be a
beginner for long.
Leave a Reply