Reading a Quarterly Letter for What It Leaves Out

The quarterly letter is the one part of a company report that a person wrote. The tables were assembled. The notes were checked by lawyers. The letter, on the other hand, is a chief executive talking, and what they leave out is usually as informative as what they say.

This is how we read one. The firm is invented, the figures are invented, and nothing here is advice to buy or sell anything.

Count the verbs

Take the first paragraph of Brannock Textile Works' letter: "We delivered resilient performance. We navigated headwinds. We strengthened our balance sheet." Three sentences, three verbs, no numbers.

Now read the second paragraph. "Revenue was HM 31.2 million, down 11 percent." One sentence, one number, one verb that does what it says. The gap between those two paragraphs is the letter. A firm that opens with feelings and arrives at figures late has decided what you should notice first.

Notice the comparison

Every number needs a yardstick, and the yardstick is chosen by the author. Brannock compares this quarter's operating profit with the previous quarter, which was bad, and not with the same quarter last year, which was better. The first comparison gives a rise of 18 percent. The second gives a fall of 9.

Both statements are true. Only one appears in the letter.

Look for the missing line

Letters tend to omit what the table can't quite hide. Check the table of contents of the report against the letter: is there a segment that has its own page but gets no mention? Brannock's home-furnishing division has eight pages of figures and exactly zero words of commentary. That silence has a shape.

The reverse test works too. If the letter praises a division the tables barely mention, ask what the praise is covering.

Find the number that moved

Pick the single table figure that changed most from the previous period, and look for it in the letter. Here it is inventory, up from HM 4.1 million to HM 6.3 million. The letter's phrase for this is "strategic build-up ahead of the season". Inventory that rises 54 percent in a quarter when revenue fell is not, on the evidence in the report, strategy. It may be hope.

The adjective tells you what the author wants. The number tells you what happened.

What this is not

This is a reading exercise, not a verdict. We make no judgement about whether Brannock is a good business, and we would never say so from a letter alone. A letter is a position. The accounts are the evidence, and the notes to the accounts are where the evidence starts to speak.

Read the letter first, for the voice. Read the tables second, for the facts. Then read the letter again and notice how different it sounds.

Names, places and events in this demo are fictional.