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The following is the quarterly financials for AAPL.

  1. What financial result in the list can indicate the strength of the company and it is rightly valued?
  2. Does the stock price normally adjusts to the reasonable valuation price after a quarterly release (go up or go down)?

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  • Anyone who really knows the answers to these question is extremely wealthy and unlikely to answer questions on the Internet :-) – Hilmar Jan 18 at 14:26
  • Try the Psychic Hotline :->) – Bob Baerker Jan 18 at 17:15
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  1. None of these and all of these. Valuing a publically-listed company is extremely tricky. Some investors will use various ratios to try and work it out: Price/Earnings, Enterprise Value/Sales, Price Earnings Growth, to name a couple. There are loads of them and there are probably as many combinations of these as there are investors. Whether any given combinations gives the 'right' valuation is a matter of debate.

In terms of the strength of the company, there are a few simple and commonly used ratios: quick ratio, current ratio, sales growth, etc and there are more sophisticated methods. One commonly used one is the Altman Z Score which aims to give an idea of how likely a company is to go bust.

  1. The nature of the results is normally telegraphed well in advance of the actual release of the results. That's where those 'profit warnings' and other dire news can come from, or more rarely statements about how amazingly well the company is doing this quarter.

There are people whose sole job it is to use the various ratios I mentioned above, work out what they should be for this quarter, year, whatever, work out the value of the company accordingly and then recommend buy or sells for their investment company based on that. Occasionally, even they are surprised and when that happens the share price adjusts as you suggest. Normally these news-based events will happen overnight, or so fast that as a retail investor you have no real chance of participating in any movement.

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In the year-over-year percentages, it appears that the decline in income is due to the decline in profit-margin because revenue actually went up.

So reach for an overall viewpoint.

In fact, semi-conductor manufacturers often feature gross-margins because they have naturally high margins and because they have manufacturing yield results. But gross-margins could be largely forgotten if there are severe drops in revenue. Other industries will feature different defining fundamentals.

Finally, income alone doesn't identify what is happening with the company. Revenue combined with profit-margin gives a more complete view.

The best hope for predicting the future is a statistical curve-fit of the past. Otherwise there is a list of fundamentals as declining, holding, or increasing.

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