Business Momentum for banks

Which reports do we compare?

We compare each recent report with the corresponding period of the previous financial year. For example, a company's first half is compared with its first half a year earlier. This helps avoid confusing seasonal changes with progress.

The newest comparison counts 70%. The comparison for the preceding reporting period counts 30%. Recent results therefore matter most, while the preceding report still contributes.

If only one comparison is available, we use it and show that less information supports the score. We do not replace a missing recent report with an older one. If only annual reporting can be used, we compare the latest full year with the year before, and that year with the preceding year. We do not use rolling 12-month totals.

How changes become points

An unchanged result normally gives 50 points. Improvement gives more points and deterioration fewer, on a scale from 0 to 100. Between the values below, the points change gradually.

Changes in margins and returns are measured in percentage points. For example, a margin rising from 10% to 12% has improved by 2 percentage points. That is different from a 2% rise in sales.

• ▸Sales per share: a fall of 10% gives 0 points; a rise of 10% gives 100.
• ▸Profit or FFO per share: a fall of 20% gives 0 points; a rise of 20% gives 100.
• ▸Profit margin and return on capital: a fall of 5 percentage points gives 0 points; a rise of 5 gives 100.
• ▸Number of shares: a rise of 5% gives 0 points; a fall of 3% gives 100.
• ▸Analyst profit forecasts: a reduction of 20% gives 0 points; an increase of 20% gives 100.
• ▸Reported profit versus the forecast: 30% below gives 0 points; 30% above gives 100.

For earnings and cash amounts, a smaller loss counts as improvement. Moving from a loss to a profit gives 100 points, and moving from profit to loss gives 0. Starting from zero, a positive result gives 100, a negative result 0, and another zero 50. For other changes, we divide the difference by the size of the earlier amount, ignoring its minus sign.

We set aside impossible inputs, such as negative sales or a share count of zero. They do not earn points.

How we use analyst expectations

We follow the forecast for the first financial year after the latest completed year. We compare the latest forecast with one recorded 90 to 120 days earlier. The latest forecast must be no more than 45 days old and come from at least one analyst.

We normally use profit per share adjusted for unusual items, called normalized EPS. If it is unavailable, we use the unadjusted EPS forecast for the same year. We use one of these measures, not an average of both. For REITs, we use FFO per share.

A forecast based on few analysts has less influence. With one analyst, a result that would otherwise give 100 points becomes 60. With five or more analysts, it keeps all 100. The same adjustment pulls low scores towards 50. The calculation is: 50 + (points before adjustment − 50) × the smaller of analyst count ÷ 5 and 1.

For results versus expectations, we compare reported profit with the analysts' average forecast for that exact reporting period. We use normalized EPS, or FFO for REITs. If the latest reporting period cannot be compared, we try the latest full financial year. An estimate never replaces a missing reported result.

How much information supports the score?

A part can contribute to the score when at least one of its two report comparisons is available. Both comparisons provide full coverage; the newest alone provides 70%, and the earlier alone 30%. Coverage means how much of the planned calculation we can support with data, taking each part's share into account.

High confidence requires at least 90% coverage, Medium at least 70%, and Low at least 60%. Below 60%, we do not show a score. Parts that do not apply to the company type are left out of this calculation too.

For banks, using net interest income divided by assets in place of the reported net interest margin limits confidence to Low. Other permitted alternatives do not automatically lower this label further. Notes explain missing information and substitutions. Business Momentum does not add separate warning badges.