The earnings reports season is in full swing. According to the interactive investor’s US earnings calendar, as of July 31, 2023, there are 446 publicly traded companies in the United States that are scheduled to report earnings in August 2023. Two companies on the calendar for this week everyone is keeping an eye on are Amazon and Apple. To keep track of who is reporting and when you can see a full earnings calendar here.
Why are Earnings Reports Important?
- Revealing Financial Health: An earnings report provides a comprehensive overview of a company’s financial health. It includes details about revenue, net income, earnings per share (EPS), and other important financial metrics. A consistent record of strong earnings can be an indicator of a company’s successful management and business model.
- Informing Investment Decisions: The information in an earnings report directly influences an investor’s decision to buy, hold, or sell a stock. Positive earnings can lead to an increase in stock prices, while disappointing earnings results can trigger a drop.
- Forecasting Future Performance: Beyond showing past and present financial performance, earnings reports often include forward-looking statements about a company’s future outlook. This guidance can help investors predict future earnings and make decisions about their investment strategy accordingly.
How to Best Use Earnings Reports?
- Understanding the Metrics: When analyzing an earnings report, it’s essential to understand the different financial metrics it includes. Revenue and net income provide information about a company’s profitability, while EPS measures the profitability on a per-share basis. A higher EPS can indicate more value because investors will receive more for each share they own.
- Comparative Analysis: Don’t look at a company’s earnings report in isolation. Compare the company’s performance with that of previous quarters and years, as well as with competitors in the same industry. This comparison can offer insights into the company’s relative performance and market position.
- Look Beyond the Numbers: While the financial metrics are crucial, they aren’t the whole story. The management discussion and analysis section of the earnings report provides management’s perspective on the company’s performance, significant risks, future plans, and market opportunities. This narrative can provide valuable context to the numbers.
- Investment Strategy Adjustment: Use earnings reports to regularly reassess your investment strategy. If a company’s earnings are consistently falling short of expectations or its future outlook is negative, it might be time to consider selling the stock. Conversely, positive earnings reports and a strong future outlook might be a good time to buy more shares.
