An earnings call is a great tool for investors, both established and newcomers alike. The financial performance of a company is laid out and participants are given the chance to inquire about the status of the company. This is why a new investor should know how to listen to an earnings call and ask the right questions. Questions that will not only help you get to know more about the inner workings of a company, but also help you decide on your investment strategy.
Get to know more about the current and possible threats to the company. This can include new competitors, new kinds of technology, government regulations, weather, or more.
It’s wise to ask about the debt ratio of the company. If it’s poor then that means the company is not producing enough cash flow to service its debt and this will definitely be a problem in the future. A ratio of 0.4 (40 percent) or lower is considered a good debt ratio, but a ratio above 0.6 is usually considered to be poor.
With this question, you can garner just how confident the management is with their new or upcoming products. You’ll also be able to find out how these new products will affect the company in the future.
Employees remain as a company’s greatest asset and it’s important to know how companies are managing and investing in their human capital. Human capital is an intangible asset that includes the workers’ education, training, intelligence, skills, and even values. The more a company invests in its employees, the more profitable they could be.
Get to know how the company is tracking the trends in their industry. This will let you know just how much the company is aware of the trends and how are they keeping up to date with the ever-changing habits of the customers and the elements of the industry.
Try to find out if there are any major slowdowns in the production of goods. This can be a good way to discover if the company is experiencing any setbacks from the supply and demand environment or internal management that could affect future plants.
Ask the company about their action plan on how to maintain an excellent financial performance or surpass a poor one. You can listen to the tone of the management and see how well-prepared they are for their short-term growth.
This question will allow you to peer into the vision and aspiration of the company. It also allows them to highlight their products and services and how it will help or change the market in the long run.
It’s important to discern in the earnings call if the company knows just how to address the risks and manage them in a way that will do little to no harm to the growth of the company.
Whether the company did great or unsatisfactory, ask them how their performance will affect their long-term goals. Will they share a positive outlook? Or will they let negativity overrun their earnings call or their management?