Corporate earnings are a key measure of a company’s financial health, and thus, a central part of the overall economy. In simple terms, they are the total monetary profits earned by a private sector enterprise (a company or corporation) minus its operating expenses and taxes. These profits incentivize companies to continue investing in their operations and drive economic growth. Companies can choose to reinvest their profits or pass them on to shareholders in the form of dividends and share buybacks.
In addition to revenue and profit figures, many public companies provide guidance for future quarters, which can often significantly impact stock prices. For this reason, earnings season is a critical time for market participants to stay up-to-date on the latest corporate news and investor expectations.
The main metrics investors focus on during earnings season are EPS, net income, and margins. These figures give a clear picture of a company’s profitability and long-term potential, and are an important consideration when assessing a stock’s value and risk. In addition to these basic metrics, a variety of other data points may be included in an earnings report, such as forward guidance, capital expenditures, and special announcements like mergers or acquisitions.
The specific metrics investors focus on will vary depending on their individual strategies and industry sectors. For example, technology sector reports will likely highlight research and development spending or subscriber growth for subscription-based services, while energy sector reports may focus on production volume trends. Regardless of the specifics, however, all earnings reports will contain the same basic information: revenue (sales) minus costs (operating expenses) minus taxes (interest and income). This figure is then divided by the company’s total number of shares outstanding to arrive at earnings per share (EPS).