Tuesday, July 12, 2011

Why Quarterly Earnings Reporting Must Be Maintained!!

I can't believe this issue is even brought up.

Look, why was the quarterly earnings introduced?

Why? It improves transparency. It gives the investor 'some' whatever small insight to what's happening to the company that they have vested interests in. By knowing what's happening, it helps protects the minority investor against accounting fraud.

It also provides much information to the prospective investor.

That's my simple reason why the quarterly earnings reporting must be maintained.

I do not believe in just theories. Let's take a real example and see if quarterly earnings helped.

I take the simple one,

May 2009: Quarterly rpt on consolidated results for the financial period ended 31/3/2009

Sales 38.775 million Net LOSS 0.084 million Receivables 163.773 Million Cash 2.222 million Total borrowings 144.574 million

Aug 2009: Quarterly rpt on consolidated results for the financial period ended 30/6/2009

Sales 57.686 million Net Profit 1.013 million Receivables 207.584 Million Cash 2.202 million Total borrowings 144.463 million.

Nov 2009Quarterly rpt on consolidated results for the financial period ended 30/9/2009

Sales 35.334 million Net Profit 3.718 million Receivables 225.317 Million Cash 2.298 million Total borrowings 143.354 million.

Feb 2010: Quarterly rpt on consolidated results for the financial period ended 31/12/2009

Sales 101.441 million Net Profit 4.769 million Receivables 248.662 Million Cash 2.210 million Total borrowings 142.203 million.

Ok.. the next one... June 2010 was reported AFTER all hell broke loose..... I will just state it anyway.

June 2010Quarterly rpt on consolidated results for the financial period ended 31/3/2010

Sales 18.762 million Net LOSS: 146.552 million Receivables 152.339 Million Cash 0.440 million Total borrowings 139.043 million. ( Why the huge loss? Do read this old posting:  Kenmark Finally Discloses In Detail Why It Suffered 146 Million In Losses But... )

Looking at the info above. Wasn't it so crystal clear that something was not right in the accounts? Let's look at Aug 2009 report and compare it versus the May 2009 report.

Look at how the receivables 'suddenly jumped' to 207.584 million. Last quarter, receivables were 'only' 163.773 million.

What on earth is happening???

Sales only improved some 18.911 million, from 38.775 million to 57.686 million.

But receivables jumped some 43.811 million!!

Unreal isn't it? Pure insanity! How on earth can any company run a business in such a fashion? A cash balance of only 2.2 million and total debts of 144.463 million? Was there any way possible such a business could survive????

And all this simple concerns were easily spotted right there and then, WITH THE HELP OF QUARTERLY EARNINGS REPORTING.

It gave the investor a rather clear and precise warning that things weren't right in this company.

Consider this. Half yearly earnings means every six months, meaning we will skip one set of quarterly earnings.

For Kenmark's case above, could the minority shareholder enjoy the luxury of skipping one set of the quarterly earnings?

Which set of quarterly earnings do you suggest we skip?

And without that set of quarterly earnings, and without news coverage on the stock... what chances is there for the minority shareholder to survive?

I can run though other examples. Take the fall and the accounting fraud in Megan Media. Did quarterly earnings helped alert the investor? Take the recent plunge of Hai-O. Did the quarterly earnings helped? Did the quarterly earnings helped the investor make the correct decision? Did the quarterly earnings gave sufficient warning to the investor that Hai-O's growth was clearly over and that the best course of action was to sell? Or the recent slowdown in glove makers earnings? Did the quarterly earnings help the investor make the correct decision?

Or the minority shareholders just isn't important? Yeah, the minority shareholders is just there waiting to be screwed???!!!!

Or how about a more current/live issue?

Take Muhibbah's current APH issue. We all know the concern is whether Muhibbah can collect payment from APH and also we want to know how Muhibbah's balance sheet is faring. We want to know the state of Muhibbah's receivables. Is it improving or is it worsening? Yes?

Now assume we are on a half yearly reporting. The last reported earnings was on May 2011.

Muhibbah came crashing down on June 2011.

This would mean that the investing public needs to wait until Nov 2011 to be updated!

Is this acceptable?

With the quarterly earnings, the investing public can be updated by Aug 2011.

Which is better?

How now brown cow?

My say?

Quarterly earnings is a must. And if the listed company thinks that it's a waste of time, then the listed company should not waste the stock market's time being a listed entity.

We all want a fair and fully transparent stock market!

ps: snowball had his say too! http://goodstockbadstock.blogspot.com/2011/07/no-to-half-yearly-reporting.html

ps/ps: Dali's different views! http://malaysiafinance.blogspot.com/2011/07/scs-recommendation.html


TK said...

Companies prepare monthly management accounts to control and monitor their performance . It is not difficult to produce quarterly reports. If a company has problem with producing a quarterly report, we can imagine how good a company is being manage.

Moolah said...

Well said TK!!!

If company cannot even manage to produce a quarterly company, what more can we say about the quality of the management of the said company!

Moolah said...

I would like to see a real example where quarterly earnings reporting actually caused harm to the investor.

mapsscom said...

YOU HAVE MY 1000% VOTE.they should improve to report within a week

newbie said...

Great write-up.Support your call totally.We kacang putih investors can only rely on companies' quarterly reports to evaluate their performance.To think that such little liberty that is rightfully ours is going to be taken away just to make sure that other people's work is to be made easier!!Don't they remember what happened previously when quarterly reports were non existent?
Quarterly reports are not meant to punish companies into doing more work.It is to keep a leash on the companies to make sure they adhere to necessary practices.
How can one be worse off with more information??

Moolah said...

Quote: Quarterly reports are not meant to punish companies into doing more work.It is to keep a leash on the companies to make sure they adhere to necessary practices.

How can one be worse off with more information??

===>>> Well said!


snowball said...

Hi Moolah,

Thanks for highlighting my post. Great real life exampleS too. I am quite shock too when they actually raise this issue. As TK has said, it is not hard to produce quarterly report because management already have all the information. The sort of accounting fraud that happened could be detected via quarterly reporting. Our quarterly reporting need not to be reviewed by auditors unlike US, so, it cost much less money.

Those that says quarterly report is useless and stuff are people with self interest. Even right now, some of us already feel some stock performance is rigged, by taking away the quarterly report, the integrity of the market will be lost.

Moolah said...

Err.. the markets are more rigged in the US.


snowball said...

lol..do you mean QE or others things? Any examples?

Moolah said...

And oh yea... if you do WATCH ... you can certainly see it very clearly.

ps... nowadays... it's only 30 stocks.

And then... every now and then... there are additions and removals to these 30...


how things not looking so rosy?


Moolah said...

lol.. snowball... where should i start?

oh.. zerohedge.com ... u can try following it for a couple of weeks...

snowball said...


you mean they manipulate the CI? There are some last minute buying to jack up the closing price of the CI component. But, I guess the index rebalancing is required when other companies market cap has gotten too large which is why buying index fund may not be a good idea because you are buying companies that have perform well. Companies that perform well previously may not necessarily perform well in the future.

I read zerohedge on and off but not regularly tough. I would have thought that a more liquid market and much bigger size means rigging is harder. Having said that, there are a lot of stuff that I do not know, there may be other ways to rig it.