What is an Earning Report?

An earning report is also known as a quarterly earnings report since it is reported every quarter. A quarterly earnings report is the Form 10-Q that a publicly-traded company files with the Securities and Exchange Commission (SEC). The reports contain financial statements that show revenues, expenses, profit and loss, operating profits and margins, cashflows, EPS, net income and other related financial statements.

Tip: When searching for the best stocks to buy, aim for companies with strong earnings reports and check the calendar to see when the next earning is up.

What is revenue?

The revenue of a company is calculated by the number of units sold multiplied with the unit price. In other words, it is an increase in the assets or a decrease in liabilities caused by the provision of services to customers. Moreover, it is a way to measure the gross activity generated by a business. The formula is the following:

Revenue = Number of units sold x Unit Price

earning report chart

Revenues are the first thing reported on an income statement of a company. Expenses related to the cost of goods, administrative expenses and general expenses are then subtracted from the revenue in order to show the net profit of a business.

Why is an earning report important?

When analyzing earnings reports investors and analysts can understand the financial health of a company and determine whether it can be a good investment for them or not.

Fundamental analysts believe that a good investment is shown in the performance analysis of a business. Particular attention is paid to the various ratios shown on earnings reports over time, instead of the single information from each report. One of the most important ratios is EPS.

How to read an earnings report?

It is very important to understand what the earnings report represents. Firstly, it is a quarterly update on the company’s fundamentals of all three financial statements, balance sheet, income statement, and cash flow statement. Each one of them provides investors with an overview of sales improvement or not, expenses increase or decrease, and net income. Some quarterly earnings reports include also a small brief from the CEO or the spokesman of the company comparing the performance with previous ones.

earning reports

Limitations of an earning report

In general, earnings reports are something every investor is waiting to look at as soon as they are announced. They can bring a lot of volatility to stocks on the day of the announcement whether they are good or bad. The stock prices can drop or rise sharply and moves the market in large proportions.

A company is always trying to beat analysts’ expectations and predictions on expected revenues. This tends to be even more important than the overall ability of the company to grow over the year. For example, if a company’s estimates are high and the company’s actual earnings reports beat those estimates the stock price will jump. On the other hand, if the company does not manage to beat estimates it might result in a sell-off of the stock.

Analysts’ estimates are just important as earnings reports themselves. In the stock market, we have seen many examples of speculation driving the stock price that is based on the efficiency theory. Such as the Fuel Cell Energy that has been rallying up in the last couple of days just because of the “blue wave” of President Biden. Biden wants to give space to energy stocks to grow and this company falls under this sector. There are no fundamental news supporting the rally and is all based on speculation.

Tip: FDGT is always keeping its premium members up to date with all the upcoming earnings report via email