The first thing you need to know about earnings reports is that they give you a lot of information about how your investments are doing. Not only do they give you a look at how the companies in your portfolio are doing, they also tell you exactly how much money you are making, and how much money each company is making. The most important thing you can do with earnings reports is to use them as a guide for what to do with your investments—they tell you how to make your investments a lot more productive for you.
Earnings reports are a good way for investors to get a snapshot of the current state of their investments. In the latest earnings season, which concluded in the month of June, we have seen good reports for companies. Earnings for the six major (i.e. top-performing) S&P 500 companies have risen by an average of 9.9%. Earnings for the ten largest companies by market cap have risen by an average of 11.5% in the same time period.
Earnings reports are released on the first Friday of every month by the companies you invest in. These reports are supposed to be a snapshot of how well an industry is doing. In reality, they are often not very useful. All companies report earnings in the same format—some companies use a different calendar year for their earnings, only change one line of the report, or include only one line of the earnings report. The reports do not even contain the most important piece of information—the actual earnings per share. So, what should investors actually expect?. Read more about what is earnings release in stock market and let us know what you think.
During my time at my first job out of college, the business I worked for became public. I was given shares as a bonus soon after that. I said thank you and didn’t think twice about it when I was 23 years old.
I started getting official-looking papers in the mail after that. To be honest, I was sure the first time I received one that I had done my taxes incorrectly or was in some kind of legal trouble. However, the letters were actually notices, notices to me as the company’s owner.
To say I’m perplexed is an understatement. Some of the communications informed me of upcoming annual shareholder meetings or asked for my vote on a major proposition. For years, I tossed them away, certain that they didn’t really want my opinion.
But here’s what I’ve realized: when you hold stock in a business, whether you bought it or received it as a gift, you own a piece of it. And that implies that whether you hold one share or 100,000, you have the right and duty to be involved in and informed about the company’s activities.
That implies shareholders must be aware of what is going on behind the scenes. Regularly reviewing the earnings reports for the businesses you invest in is one of the greatest ways to make smart investment choices and keep on top of when it may be a good time to purchase or sell your investment.
We’ll go through the following topics in this article:
- The fundamentals of investing in the stock market
- What is an earnings report, and why should you worry about it?
- How to Read a Profit and Loss Statement
- What impact may earnings reports have on your investments?
The Basics of Stock Market Investing
Putting recent Reddit antics aside, purchasing shares in a business isn’t a game. As previously stated, holding stock in a business entitles you to a portion of the company’s ownership. And publicly traded businesses on the stock exchange have a duty to make a profit for the benefit of shareholders like you.
In a nutshell, this is how the stock market investment process works.
1. Do some research on the business you wish to invest in. This section is essential, and the earnings report, as we’ll see later, may be a valuable source of information for your study. During the research phase, you’ll be looking for answers to queries such as:
- What exactly does this business do?
- Is the business a success?
- Who are the main rivals, and how does this firm’s product compare to theirs?
- Are the members of the leadership team trustworthy and accountable?
2. Decide how much money you want to put into it. You’ll decide how much you can afford to invest in a stock based on your financial position, provided you have an emergency fund and aren’t drowning in debt. You may either make a one-time transaction or schedule a recurring purchase.
3. Find a stockbroker or business, such as M1 Finance or Webull, to handle the purchase transaction on your behalf (because you can’t buy shares directly from a corporation).
4. Trade money for shares or partial shares in the business and become a part-owner. Congrats!
5. Get involved in business decisions through voting on board members, mergers, and acquisitions, among other things.
6. Keep the stock for a while, re-evaluating whether it makes sense to keep it, purchase more, or sell it.
Isn’t it fairly straightforward? At first sight, it seems to be such. But it’s the decision-making that comes into play when purchasing and deciding when to sell that’s difficult.
Companies, thankfully, provide earnings reports four times a year, allowing you to remain up to date and make the best choice possible on whether to stick it out or sell your stock.
What is the purpose of an earnings report?
As a means of remaining responsible, publicly listed businesses are legally obliged to disclose results to their investors once per quarter. These earnings reports show how well a business is doing and are scrutinized by investors.
Form 10-Q is the official financial document for quarterly earnings reporting. Businesses are also required to file an annual report on Form 10-K. All reports are freely accessible online since the businesses submitting these filings are publicly traded.
If you can’t locate the form you need on a company’s website’s “Investor Relations” section, you may seek it up in the SEC database.
How to Read a Profit and Loss Statement
Years after obtaining those bonus stock options from my first job, I wanted to become more involved in the business (particularly because I had left employment and wasn’t keeping up with day-to-day activities). After all, that stock was my money, so I should be keeping an eye on it and cheering for it since it means more money in my pocket when I sell it.
So, when I chose to look into the company’s present state, I came upon its financial reports. But, I’m not going to lie, I was a little overwhelmed.
Before you commit to reading a company’s whole earnings report, keep in mind that a single report may be as long as 100 pages. A press release is usually issued in conjunction with the publication of the earnings report. The press release, which is approximately one page long, may provide you a high-level summary of the facts you need to know.
Needless to say, I began to rely on press releases as a source of information. However, if you’re ready to dive into the whole report, these are the key parts you’ll most likely encounter.
- Table of contents: The often long earnings reports come with a well-organized table of contents, much like a book. This allows you to rapidly navigate to the region of most interest while seeing all of the information included at a glance.
- Financial statements: Any earnings report’s financial statements section will include key figures such as income, cash flow, expenses, and more. The financial statements section may give you all you need to know about where a business stands financially compared to the previous quarter if you’re thinking about investing in it.
- This part of the earnings report is less about the statistics and more about the company’s future plans. Companies may address revenue sources, internal investments, or any other aspect of the business that has a direct effect on profitability and the bottom line.
- Market risk disclosures: In the market risk section, businesses will disclose information such as pending litigation and anything else that may have an effect on current or future operations.
An earnings call with the company’s executive team, usually including the numbers person, the Chief Financial Officer, or CFO, may or may not be held in conjunction with the release of an earnings report.
As you can see, earnings reports include a wealth of information regarding a company’s present state of affairs. And, depending on the contents of the earnings report, they may result in a significant shift in stock price, for better or for worse.
Investors’ Reaction to Earnings Reports
Earnings reports may have a huge effect on investors. Depending on how successfully or badly a business performed in the preceding quarter, shareholders may choose to reward them with a price increase or sell shares in large quantities, producing a sharp drop in value.
In fact, one of the most important factors in stock price volatility is the earnings report. For example, Upwork (UPWK) is a stock that I’ve been watching for the last year.
As you can see from the stock price charts below, there were substantial price swings on the days Upwork announced results. These swings were determined by whether the business met or exceeded expectations in the third quarter of 2020 (they surpassed expectations in Q3 2020, as reported on 11/4/20) or not (they missed in Q1 2021, as reported on 5/4/21).
These situations are replicated across the board with different businesses. What investors need to know in the end is this:
Stock prices are influenced by earnings releases.
That’s why my greatest advise to investors is to remain educated, keep involved, and don’t allow an earnings report startle you into missing a buying or selling opportunity.
If you’re thinking about investing in a business or already do, you should be aware of when it reports profits. Stocks may start to vary as the results date approaches, depending on whether investors believe the business will meet its goals.
Keep the following in mind to remain informed about your investments:
- Keep track of future pay dates.
- When the earnings report is out, you can see it for yourself.
- If you’ve been contemplating buying or selling around earnings dates, be ready to make a move.
Tracking earnings reports may help you keep your finger on the pulse of your assets and ensure you’re making wise financial decisions. Also, unlike me, you will not be caught off guard by abrupt market swings.
- Understanding Stock Market Trading For Beginners is a quick reference guide for those who are new to the stock market.
- What Is the Best Way to Find Dividend Stocks?
- How to Make Long-Term Stock Investments
What Are Earnings Reports and What Do They Mean For My Investments? appeared first on What Are Earnings Reports and What Do They Mean For My Investments? The post Minority Mindset appeared first on Minority Mindset.
There are two types of financial reports that are released every quarter: the earnings report and the statement of cash flows. The earnings report tells us about how well the company is doing and how well the company has done relative to the other companies in the same industry. The statement of cash flows includes all the other financial reports and reveals how much money the company has and how well the company has done with regards to its debt, property and equipment, income tax payments, and other liabilities.. Read more about earnings reports to watch this week and let us know what you think.
Frequently Asked Questions
What do earnings reports mean for stocks?
Earnings reports are a way for companies to share information with the public about their financial performance. They are typically released on a quarterly basis and they provide investors with a window into how well a company is doing.
Do stocks Go Up After earnings report?
Stocks do not go up after an earnings report.
How does earnings report affect stock price?
The earnings report is a document that shows the companys financial performance for a certain period of time. It also includes information about how much profit or loss the company has made, as well as what percentage of revenue it has been able to generate.
This article broadly covered the following related topics:
- earnings reports
- earnings report
- earnings reports to watch this week
- how to read earnings report
- where to find earnings reports