Corporate earnings (also called net income) are a key measure of company profitability. They are the difference between a company’s revenue and its expenses, including salaries, operating costs, taxes, and interest. This metric is crucial for investors to understand because it can directly impact stock prices.
Earnings are reported quarterly by publicly-traded companies. When a company reports earnings, it can either beat or miss expectations set by analysts. This is known as “earnings surprise.” A positive surprises leads to higher stock prices, while a negative surprises can lead to lower stock prices.
While there are a number of metrics that investors and analysts focus on when reviewing earnings reports, the specifics often depend on the industry sector in question. For example, tech investors may pay close attention to research and development spending or subscriber growth, while energy sector reports might highlight production volumes and commodity price trends. Regardless of the specifics, however, all earnings reports should include revenue and earnings per share (EPS) data.
EPS is calculated by dividing a company’s total earnings by its outstanding shares. This metric is important because it allows investors to compare the profitability of a company across its industry. In addition, it’s also a useful way to assess the value of a company’s stock. Many earnings reports also feature guidance, which is a forecast of a company’s future earnings. This information can be helpful for both long-term investors and short-term traders. For long-term investors, this data can help inform investment strategy while short-term traders may be more interested in the company’s outlook for future growth.