We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is an Earnings Report?

By Danielle DeLee
Updated: May 16, 2024
Views: 5,244
Share

Investment behavior is based on predictions about the future behavior of the market and of individual stocks. Those predictions are based, in large part, on the past behavior of companies. Those that have shown profits are likely to do so again. In the United States, the Securities Exchange Commission requires publicly traded companies to file documents, called earnings reports, outlining their profits and losses. Corporations also release reports highlighting the numbers they feel are most relevant to the investors interested in the company and providing analysis.

Some investors just read earnings press releases, but these contain little information. An alternative to reading the press releases is to go to the source: the actual earnings report documents the company files with the Securities Exchange Commission from which the earnings report is prepared. Each quarter, the company must file a form 10-Q, and it must file a form 10-K annually. These filings include an income statement, the company’s balance sheet and cash flow statements, along with analysis of the company’s position and identification of its vulnerability to market changes.

When analyzing an earnings report, investors should be careful to separate the company’s own analysis from the numbers it includes. The report is important for the company because it shapes investors’ expectations about the firm’s future performance. To encourage investment, companies try to put as positive a spin as possible on the figures in the report; they are limited, however, by the Securities Exchange Commission’s strict rules on accurate reporting. Investors should try to focus on the company’s numbers rather than the report’s rhetoric.

Each earnings report has the same structure, prescribed by the Securities Exchange Commission. Part I gives financial information, and Part II gives other information, including legal information and analysis on the company’s position relative to the market. Investors should pay attention to the information in Part I, especially the company’s net income as compared to past performance, and the market risks to which the company is vulnerable, which are reported in Item 1A of Part II.

It is important that investors have an accurate impression of a company’s earnings so they can make informed decisions about the stock’s desirability. Past profits make future profits more likely. Earnings are also instrumental in figuring out the price to earnings ratio, or the P/E ratio. This is found by dividing the company’s market capitalization, or the total price of all its outstanding shares, by its annual earnings. Historically, the average P/E ratio has been about 15; significant deviations from that number are clues to investors that a stock is either undervalued or overvalued.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
Share
https://www.smartcapitalmind.com/what-is-an-earnings-report.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.