Stock investment that even beginners can understand, the impact of financial results announcements on stock prices

The financial results announcement of a company has a great influence on the fluctuation of stock prices. By analyzing companies and markets based on the content of financial results announcements, you will be able to predict the future performance and profitability of companies and make better investment decisions.

In this article, we will explain the overview and schedule of financial results announcements, and the mechanism by which financial results announcements affect stock prices. Also, in the second half, we have summarized the items that are indispensable for reading and understanding the financial results announcement in detail, so please refer to it.

By reading this article, you will be able to understand the relationship between financial results announcements and stock prices, and you will be able to make more accurate investment decisions that are essential for making stable profits from stock investment.

1. What is the “financial results announcement” that affects the stock price?

Financial results announcement is to announce to the market the financial situation during the settlement period specified by the company. It is considered an important indicator for evaluating a company’s management status because it can read various information such as revenue, profit, expenses, business growth potential, safety, and future potential.

Therefore, analysis of financial results announcements is indispensable for gathering information for stock investors. This is because it is possible to predict future growth and profitability from information such as what kind of results the company achieved during the accounting period.

A financial results briefing is generally held at the same time as the announcement of the financial results, in which the management can answer questions about the financial results. In particular, it is often held after the final settlement of accounts and after the interim settlement of accounts, and the purpose is to explain the company’s financial results to institutional investors and analysts.

A similar meeting is the general shareholders meeting. It is different from a briefing session.

If you can analyze financial results announcements, there are benefits to a certain extent in cryptocurrency investment. By knowing the business situation of companies related to virtual currency, it will be useful for predicting the future of services operated by the company, so it will be easier to make more advantageous investment decisions than general virtual currency investors. prize.

2. Timing and schedule of announcement of financial results

Financial results are announced once every three months, and many companies tend to announce full financial results in March, the end of the fiscal year. The specific schedule for the announcement of financial results is as follows.

• End of June: First Quarter Financial Results
• End of September: 2nd Quarter Financial Results (Interim Financial Results)
• End of December: Third Quarter Financial Results
• End of March: 4th Quarter Financial Results (Final Financial Results)

The Financial Instruments and Exchange Act requires listed companies to submit quarterly reports containing financial information, such as quarterly reports and earnings announcements.

Reports are filed within 45 days after the end of the quarter, two weeks prior to the announcement of each period’s results. For example, if the fiscal year ends at the end of March, the company must release its financial information by May 15th. Therefore, around the beginning of May, companies’ financial information will begin to be released.

It should be noted that the fourth quarter financial results (final financial results), which will be held at the end of March, are the most important of the four earnings announcements.

This is because the full-year financial results summarize the earnings and performance of all transactions conducted in the fiscal year, and at the same time announce the performance forecast for the next fiscal year, so the impact on stock price fluctuations is extremely large.

3. Importance of financial results announcement in stock investment

So why are earnings releases important to stock investors? I will explain three main reasons.

3-1. Assess the strength of the company

Disclosure of financial conditions and results reveals the management power and asset status of the company, so the announcement of financial results plays a role in showing the strength of the company.

For example, if a food manufacturer’s operating profit increased significantly compared to the same period last year, it would give a favorable impression to the market and it would be expected that the stock price would rise. On the other hand, if operating income, etc. has fallen significantly compared to the same period last year, it is expected that the stock price will tend to fall in the future.

3-2. Useful as a clue for predicting future performance

Earnings announcements not only give us an idea of ​​a company’s capabilities, but they also provide us with clues to predict future performance. This is because many stock investors assess the future potential of a company based on the information in financial results announcements and invest in stocks that are highly likely to rise in stock prices over the long term.

These investor predictions are not necessarily correct, but the fact that “many investors feel the future potential” itself increases buying pressure and often leads to a short-term rise in stock prices.

Earnings announcements also include information about what risks a company faces in the future and to what extent those risks will affect the company.

Specifically, geopolitical risks related to politics between countries, and natural disaster risks such as floods and earthquakes. An extreme example would be import/export companies related to Russia and Ukraine, where the war will continue even in February 2023. In the event that business is disrupted due to this war, such as delays in imports and exports, information on such risks will be included in the financial results announcement.

4. Effects of financial results announcements on stock prices and their mechanisms

Next, let’s take a look at the impact of earnings announcements on stock prices and the mechanism behind it.

4-1. Impact of financial results announcements on stock prices

Earnings announcements have a direct impact on a company’s stock price fluctuations by significantly influencing the behavior of stock investors.

If a company’s earnings announcement is excellent, many buy orders from investors and others will put pressure on the stock price to rise. pressure is applied.

As an example, SoftBank Group Corp. announced on July 29, 2021, the financial results for the period from April to June 2021, which had a significant impact on the company’s stock price. In the announcement, it became clear that the consolidated financial results increased more than 12 times compared to the same period last year and became profitable, and the stock price has risen as a result of the increased expectations of the company from investors.

4-2. Factors and Mechanisms of Stock Price Fluctuations

The mechanism of stock price fluctuations related to financial results announcements is said to be greatly influenced by the “information asymmetry” of market participants.

Information asymmetry means that the amount and quality of information shared among participants in stock trading, such as stock investors, is not the same (asymmetric). While some investors have a wealth of experience and knowledge and are familiar with the inside information of companies, they are able to make highly accurate forecasts, while investors generally lack experience and knowledge, so their forecast accuracy is low. There are many, and there is a wide range in the level of market participants.

Market forecasts made by analysts and prominent investors prior to the announcement of financial results also have an impact on the actual stock price, and these market forecasts are more likely to cause stock prices to rise or fall than the actual published figures. There are quite a few cases that do occur.

The mechanism of stock price fluctuations is not only the information asymmetry of market participants, but also external factors such as psychological factors, which are intricately related. Equity investors will be required to establish a trading style and objective analytical skills in the same way as cryptocurrency investors.

5. Company performance that investors should look at in earnings announcements

Finally, we have summarized five points that investors should look for in financial results announcements. If you look at these five items, you can see the whole picture of the company’s financial results announcement.

5-1. Growth rate

The growth rate is an index that shows how much each item such as sales, operating income, and net income has grown compared to the same period of the previous year. It is an index that measures how much business performance has grown, and it is thought that the higher the growth rate compared to the same period of the previous year, the better the business performance of the company.

The growth rate also has the role of conveying the growth potential of a company to investors in an easy-to-understand manner and giving a positive impression such as rising stock prices. However, companies with high year-over-year growth rates are not necessarily good companies. While referring to the growth rate, let’s comprehensively consider industry trends and performance backgrounds.

5-2. Earnings forecast

Earnings forecasts are forecasts of earnings forecasts (operating income, ordinary income, net income, etc.) from the next term onwards. It is a factor that investors pay particular attention to because it has a large impact on the stock price.

When earnings forecasts are favorable, there are many cases in which more people want to buy shares in anticipation of an increase in dividends.

When referring to earnings forecasts, it is important to pay attention not only to the figures at the time of announcement of financial results, but also to subsequent revisions to earnings forecasts. If there is a certain degree of discrepancy between the initial earnings forecast and the actual figures, the company will announce the revised forecast again.

These earnings forecast revisions also tend to cause stock prices to rise when revised upwards, and to fall when revised downwards, and in any case have a large impact on stock price fluctuations.

5-3. Consensus

Consensus is an indicator that represents the average value of a company’s earnings forecasts announced by analysts and securities companies. It reflects the expectations of market participants and is often announced before the announcement of financial results.

When a company announces results that exceed consensus, the market favors the company and the stock price may rise.

5-4. Revision of earnings forecast

Revisions to earnings forecasts refer to revisions to earnings forecasts previously announced by a company. Revisions to earnings forecasts are important information when predicting the future performance of a company, and depending on the content of the revisions, they can have a significant impact on stock prices.

The content of the amendment includes various elements, but the main ones are as follows.

• Upward or downward revision of performance forecasts such as sales and profits
• Increase/decrease in dividends
• Starting or ending a new business
• Share buyback

The key points when looking at revisions to earnings forecasts are the content and magnitude of the revisions. For example, if the outlook for earnings is revised upwards significantly, it can be assumed that the future performance of the company will be favorable, and the stock price can be expected to rise. On the other hand, if the forecast is revised downward, the future performance of the company will become uncertain, and the stock price may fall.

In addition, the increase or decrease in dividends announced may affect the stock price. Dividends are designed to return a portion of net income to shareholders, so if a dividend increase is taken as a signal of confidence in future performance, stock prices may rise in the short term. On the other hand, dividend cuts are perceived as a negative factor and tend to cause stock prices to fall.

In addition, if the company buys back its own shares, it means that the number of the company’s shares circulating in the market will decrease.

5-5. Appropriate Stock Price

In order to judge the fair price of the stock, let’s check the three indicators of “market capitalization”, “PER” and “PBR”.

“Market capitalization” is an index for evaluating corporate value and scale, and can also be used as a material for determining whether the stock price is appropriate. For example, by analyzing and comparing market capitalization with multiple competitors, it is possible to determine within a certain range whether the stock price is overvalued or undervalued.

“PER” is the stock price divided by EPS (Earnings Per Share). It shows the high stock price relative to EPS, and it is possible to judge whether the stock price is undervalued or overpriced by comparing it with the PER of other companies in the same industry.

When earnings are announced, check the PER trend and compare it to the average PER over the past few years or the industry average to determine if the stock is overvalued. However, since PER cannot fully reflect the performance and future potential of a company, it must be judged together with other indicators.

“PBR” is a value obtained by dividing a company’s market capitalization by the net assets held by the company, and indicates the balance between the company’s asset value and market value.

• Low PBR: Market value is lower than the company’s real asset value
• High PBR: Market value is higher than the company’s real asset value

PBR varies depending on the industry, and asset-oriented industries such as real estate and finance tend to have relatively high PBR. On the other hand, industries such as manufacturing and retail that focus on the real economy tend to have lower PBRs. This is because the main assets are tangible assets such as equipment and goods whose asset values ​​decline over time.

However, these are just general trends, so be sure to carefully read the PBR of the company you are considering investing in.

6. Equity investment is an investment with expectations for the future of the company

In this article, we will discuss the financial statements in detail. Financial results announcements, which are released once every three months (quarters), are closely related to stock price movements. Therefore, financial results are essential for stock investors to make the best investment decisions.

In addition, stock prices are closely related to complex factors such as information asymmetry among market participants, making it difficult to predict future stock prices. While referring to the growth rate and consensus of earnings announcements, let’s accumulate experience so that you can perform highly accurate analysis little by little.

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