Man investing in front of laptopAside from the sheer numbers and performance metrics presented to the investment community on a quarterly and annual basis, have you ever paid attention to how these reports are worded and presented? As is the case with a company’s marketing efforts aimed at attracting sufficient end users for its products or services, materials presented to current and prospective investors are carefully crafted to convey a particular message in hopes of maximizing its ability to raise capital, reduce its cost of capital, and ultimately to stay ahead of the competitive landscape.

Regardless of whether the aims of investor relations is to quell the sentiments of current and future stakeholders due to poor performance or to further energize the investor base to build on recent gains, a tone of optimism is more often than not the underlying theme to any narrative presented to the public. The question is: can we differentiate whether there is some substance behind this optimism or not? A careful dissection of how performance reports are presented can often provide insight into this very question, a key component in determining investment winners from losers.

For example, how does a company frame its performance in relation to macroeconomic conditions? Albeit different companies are exposed to macroeconomic developments at varying degrees, competing corporations nonetheless compete in the same proverbial competitive landscape. A company that attempts to mask its underlying structural issues or inability to grow organically by citing difficult market conditions in its financial reports is a sign of a less than stellar investment opportunity. Buzzwords such as “currency headwinds” and “minimal growth in target markets” are recycled amongst companies that are typically underperforming.

On the other end of the spectrum, strong performing companies nonetheless cite difficult economic conditions as they arise, but do so in a manner that is in stark contrast from their underperforming counterparts. Whereas the macroeconomy can often form the bulk of a struggling corporation’s financial narrative, well performing firms typically treat such external influences as only ancillary considerations to their overall financial performance.

As many corporations have recently published their respective Q2 financial performances, it may be worth your while to move beyond the explicit raw performance data and to corroborate your financial analysis by reading in between the lines of a company’s narrative to uncover implicit takeaways.

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