Corporate earnings are the bottom line of how much a company makes. They’re important to investors because they can impact stock prices if companies beat or miss estimates.
Publicly-traded companies are required to report their earnings and revenue on a quarterly basis. This reporting is called earnings season and it happens four times a year: Q1 (January – March), Q2 (April – June), Q3 (July – September) and Q4 (October – December). Companies that release earnings reports provide valuable insight into their financial health and long-term growth potential. They also serve as a platform for communicating future strategies and financial guidance, influencing market perceptions and shaping investor expectations.
The most common measure of a company’s earnings is earnings per share (EPS). This calculation divides a company’s net income by the number of outstanding shares. For example, if a company has $100 million in net income and has 10 million shares outstanding, the EPS would be $1 per share. This metric is useful because it allows investors to compare the profitability of different companies with similar capitalizations. It can also be reported on a diluted basis, which takes into account the effect of stock options and convertible securities that increase the number of shares outstanding.
The specific metrics that traders and investors focus on depend on their individual investment strategy and industry sector. For example, long-term investors may prioritize metrics that provide insight into a company’s stability and growth potential, such as revenue trends and EPS. Meanwhile, short-term traders may be more interested in factors that drive immediate price action, such as margins and costs.