How to read quarterly financial reports

A Canadian issuer's quarterly report is three documents filed together on SEDAR+: the interim financial statements, the management's discussion and analysis (MD&A), and the CEO/CFO certifications. The press release you see quoted in the media is a fourth, unaudited document written by the company. Reading them in the right order changes what you conclude.

Start with the cash flow statement

Revenue and earnings involve judgement. Cash movement involves far less. Open the statement of cash flows and read the three sections in order: operating, investing, financing.

• Operating: is the business generating cash from what it actually does, and how does that compare with reported net income? A persistent gap between the two is the single most useful red flag in a quarterly filing.
• Investing: capital spending, acquisitions and asset sales. Growth funded by asset sales is not the same as growth funded by operations.
• Financing: equity issued, debt drawn or repaid, dividends and buybacks. For a junior issuer, this section tells you how many quarters of runway remain.

Then the balance sheet, in four lines

• Cash and equivalents, against the quarterly operating burn.
• Total debt and, in the notes, when it matures and at what rate.
• Working capital: current assets minus current liabilities.
• Share count, including the diluted figure and the warrants and options disclosed in the notes.

Share count is the line retail investors most often skip. A company can grow revenue every quarter and still deliver a falling result per share if the count grows faster.

Then the income statement

Read revenue, gross margin, operating income and net income — and read them against the same quarter a year earlier, not the previous quarter. Most Canadian businesses are seasonal: a retailer's fourth quarter and a fertiliser producer's second quarter are not comparable to the quarters beside them.

Then the MD&A

The MD&A is where management explains the numbers in prose, and where a change in tone usually appears before it appears in the figures. Compare the risk section and the outlook language with the previous quarter's wording. Sentences that quietly disappear matter as much as sentences that are added.

Non-GAAP measures: adjusted, normalised, underlying

Canadian issuers may present non-GAAP measures such as adjusted EBITDA, adjusted earnings or free cash flow, but securities rules require them to reconcile each one to the nearest IFRS figure. Find the reconciliation table and read what was excluded. Costs that are excluded every single quarter are not one-off costs.

The notes are the report

• Segment note: which part of the business actually earns the money.
• Debt note: covenants, maturities and floating-rate exposure.
• Subsequent events: anything that happened after quarter-end but before filing.
• Related-party transactions: who else is being paid.
• Going-concern language: an explicit statement of material uncertainty is the most consequential sentence a small issuer can file.

A repeatable ten-minute routine

• Operating cash flow versus net income.
• Cash on hand divided by quarterly burn — how many quarters remain.
• Diluted share count versus the same quarter last year.
• Revenue and gross margin versus the same quarter last year.
• Two paragraphs of MD&A outlook, compared word-for-word with last quarter.
• Non-GAAP reconciliation: what was excluded, and how often.

Everything filed by a Canadian reporting issuer is public and free on SEDAR+. If your view of a company comes only from the press release, you are reading the version written to be quoted.