Imagine if every three months you had to report to the financial world about how much money you made and how wisely (or unwisely) you spent it. That’s what happens with publicly traded companies when they release their quarterly earnings reports and hold an accompanying earnings call to walk through the results with investors. The financial world pays close attention to corporate earnings because they directly influence trading, with positive reports boosting stocks and driving investor confidence while disappointing reports usually trigger selloffs and help traders navigate market trends.
Corporate earnings, also called net income or ‘bottom line’, represent the actual profit that a business makes after covering all of its expenses and paying taxes. This figure is then divided by the number of outstanding shares to determine earnings per share, or EPS. EPS is a key metric that is evaluated by investors and traders because it indicates how much profit is allocated to each share of stock.
Sophisticated investors and traders use a variety of metrics to assess the health and growth potential of a company. For example, long-term investors may focus on revenue trends and a company’s operating margins while short-term traders might place more weight on earnings surprises or guidance. Whatever data points you choose to evaluate, a well-defined process is essential for navigating earnings season successfully.
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