- The most important time for every stock investor is every three months, which is also called earnings season.
- It is quite simple: a company’s or any organization’s earnings are nothing but its profits. One needs to always take a company’s income from selling something and subtract all the expenses, or production costs.
Accounting is one of the most complex things, but at the same time, earnings will always refer to how much a company makes minus costs. One should also ensure that if earnings results are positive, negative, or somewhere in between, a company’s stock will react anyway.
Meaning Of Earnings Reports
This is a simple and easy concept, as publicly traded companies or organizations are always required to file a financial report with the Securities and Exchange Commission and that too on a quarterly and annual basis.
Also, these reports will always serve as a biography of a particular company and will later list important financial data that also informs investors or traders of the entire company’s overall health and stability.
One also needs to ensure that the earnings reports are a snapshot that is required quarterly, and they are all about how a company performed over the period of three months; at the same time, these results can also provide a window into how a company could perform in the near future.
Just because of this, investors will always react directly to the particular news, which will also affect stock prices in the short term.
Impact Of Earnings Reports On Stock Prices
Investors or traders will always care about their earnings because they eventually drive stock prices. Strong earnings will generally increase the stock price, which can also be the reverse.
Sometimes, it happens that a company is not making much money despite a rocketing stock price. So, at this point in time, one needs to understand that the rising price is nothing and the investors or traders are just hoping that the company will make good profits soon. But, again, there are no expectations for the future that the company or the particular organization will make certain profits as per the investors or the traders.
Also, when any company makes money, it has only two options. The first one is the simplest, as it can improve its various products and develop new ones. The last option is nothing but passing money to various shareholders and that too in the form of dividends.
Earnings are eventually a measure of the money a company makes, and they are also evaluated in terms of earnings per share (EPS). And yes, this is one of the most important indicators of the company’s financial health and nothing else.