How to understand the terms of analysts
Before you participate in such messages as a listener for the first time, you should familiarize yourself with the special jargon used by the participants in such events. Typical terminology you will encounter in such cases — earnings per share, EP growth rates, net income, cash and cash equivalents — is discussed in Chapter 6, but there are other terms specific to the world of analyst messages . These include the following terms. How to understand the terms of analysts:
Hockey stick. When companies claim that their revenues are growing like a hockey stick, the official representatives of the company do not mean at all that a puck hit their heads. Rather, they mean the shape of a hockey stick. Using this term, they want to say that since most of their income was recorded in the last days of the quarter, the income chart takes the form of a hockey stick. Generally speaking, most companies fix their income in this way,since the system of material incentives for sales workers is built so that they close their contracts before the end of the quarter. Sales workers have to sell their quotas, and companies that plan their purchases often postpone their decisions until the last days of the quarter, when sales workers who seek to close their contracts before the end of the quarter become more compliant and the company can make more profitable conditions. the buyer. Perhaps, you yourself used this circumstance, for example, when buying a car or some other expensive product.
Lumpy. No, the head of the company does not mean badly cooked oatmeal when talking about cloddy incomes or orders. This term means the uneven sales during the quarter, when in some weeks the rate of receipt of orders were unusually low, and in others, on the contrary - unusually high. The problem is to understand the reason for this phenomenon and to understand whether such cloddy sales are typical for a given company.
Evenness of passing the distance.Do not worry, they will not ask you if you can run 10 kilometers, spending exactly five minutes on each kilometer. Mentioning the uniformity of the distance, the head of the company has in mind the uniform distribution of certain current indicators of his company over a certain period. For example, if the company's revenues in the current quarter increased at a rate of one million dollars per month, then we can expect that in 12 months the revenues of this company will increase by about 12 million dollars. However, this extrapolation can be applied only to companies with stable incomes, but not at all to companies whose products are of pronounced seasonal nature. If, for example, a retailer reports that in the fourth quarter its revenues increased at a rate of one million dollars per month, this does not mean that for the remaining 9 months the revenues of this company will increase at the same pace. It follows from the above that you must clearly understand the picture of the quarterly distribution of the company's income, i.e. the uniformity of the passage of this company the length of a year.
If you meet any incomprehensible terms, write them down to find out later their true meaning and be “in the know” next time.