Quarterly Earnings Reports
What makes up a Quarterly Earnings Report?
The Quarterly Earnings Report is a written report that is made by public companies to indicate their performance over the preceding three months. These reports follow the end of each quarter, and are usually filed in January, April, July and October. According to the rules and regulations by the Securities and Exchange Commission of every country that operates a stock market, these reports are a requirement that all quoted companies are expected to fulfill. Like ‘report cards’, they showcase figures - or metrics - that give an indication of how well the company has performed, and in what areas there is need for improvement. They are the way that companies let shareholders know how well they have performed, and most often the key metrics - net income and EPS - are weighed against the previous years’ numbers. By analysing this comparison, investors can begin to assess the financial health of the company and whether or not it deserves their investment.
Included in earnings reports are the following:
- Gross income
- Net income (before and after tax)
- Earnings per share
- Price/Earnings Ratio
- Liabilities (if any)
- Capacity expansions (if any)
- Interim Dividends (whether cash or scrip, if any)
- Future projections
Why are Quarterly Earnings Reports Significant?
When it comes to trading, you can use certain information such as price-earnings ratio to determine profitability of a company and consider whether to invest in it. This information is key when you are looking for undervalued stocks on which you could make money trading. The time around which the earnings reports of quoted companies are released is a much anticipated period in the stock market, a time known as the earnings season. The reason why we see substantial price movements during the earnings season is because the numbers usually produce market sentiment towards buying or selling a particular stock. Good numbers lead to share price appreciation, while bad numbers cause prices of affected stocks to drop.
Earnings reports are also significant to company owners as well as investors. What is important to shareholders is the comparison of the present figures with the previous quarter’s figures, rather than the actual figures themselves. The reports at a glance can tell the owners and investors of a company if it is doing well in all areas, or if any changes need to be made in order to improve profitability or cut losses. For example, if a company has improved revenues but declining profits, the company may decide that its best strategy would be to cut operating costs which are eating into the profits.