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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

An analyst's report states that a company's net profit grew 20% but does not say whether this includes a one-time gain from sale of land of Rs 40 crore on a total profit of Rs 200 crore. What is the best improvement to make the report reliable?

The analyst should separate the one-time land sale gain and discuss growth based on recurring operating profit. The gain of Rs 40 crore is a fifth of total profit, so leaving it in distorts the picture; a reliable report normalises earnings for such non-recurring items.

  1. APresent the headline growth only, since it is higher
  2. BRemove all profit figures from the report
  3. CSeparate the exceptional gain and discuss growth in profit from recurring operationsCorrect
  4. DMention the gain only in a footnote without adjusting any analysis

Explanation

A one-time gain of Rs 40 crore is 20% of the profit of Rs 200 crore, so it materially inflates the headline figure. Quality reports normalise earnings by separating non-recurring items and base the analysis on recurring profit. Footnote-only mention leaves the analysis distorted.

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